Risks appear in many forms. For example, if you own shares in a company there is price risk or market risk or company specific risk. Any one or a combination of the above reasons alone can cause the share price of the same company to fall or be ruined.
However, a mutual fund [Mutual Funds risk] consists of multiple securities in a common portfolio, providing "diversification". In fact, diversification is the biggest advantage of investing in mutual funds. This ensures that any fall in the value of one or a few securities does not have a very dangerous effect on the performance of the portfolio.
Liquidity risk is another important risk to keep in mind. What is liquidity? It is a situation of converting an asset into cash. Suppose, an investor has an investment locked up for 10 years, and needs money in the third year. This creates a liquidity problem. Presently his priority is cash and not profit. Mutual funds offer better liquidity based on their regulations and structure. The portfolio is designed to provide ease of investment and redemption to the investor.