Mutual funds invest in securities and the nature of securities depends on the objective of the scheme.
For example, an equity or growth fund would invest in company shares. A liquid fund will invest in certificates of deposits and commercial papers.
All these securities, however, are traded in the 'market'. The company's shares are bought and sold by stock exchanges, which are part of the capital market. Similarly debt instruments such as government securities can be traded on stock exchanges or through specialization systems called NDS. They act like a market for buying and selling securities, with different types of buyers and sellers. Hence the whole process of buying and selling and the price is determined by the 'market'.
The value of a security depends on the 'market forces' and the market on a news or event, in which it is difficult to foresee the direction of the market, it is impossible to predict the value of a share or security in the short term. There are many factors and players influencing its direction.
Thus every investor should know that there is always some risk associated with the value of the security on the part of the most important entity named 'market'. They should also know that mutual funds are designed to minimize the risk as much as possible.