How to choose a fund basis your risk appetite | How to select a fund based on your risk tolerance

 

Mutual Funds are market-linked investments that come with a variety of risks and unguaranteed rewards. In addition to considering the investment purpose and prospective returns, choosing the best mutual fund also requires a risk assessment. Since each investor has a distinct personality, including a propensity for risk, their choice of mutual funds will also be distinctive. Every investor will have a specific objective in mind, which will be distinct in its value and time horizon, in addition to their risk tolerance. Therefore, selecting the best mutual fund necessitates comparing different funds and using the risk-return-time horizon metric.

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Let's use an example to better grasp this. Even if both a 30-year-old and a 50-year-old may be saving for retirement, their fund selections may differ. While the 50-year-old must be extremely cautious in his/her choice since he/she has just 8–10 years remaining to achieve this objective, the 30-year-old may take a considerably bigger risk because he/she has 25–30 years left.

Choose a fund whose risk appetite meets the fund's risk profile. Select a debt fund if you want to take less risk. Find an appropriate equity fund if you don't mind taking a chance. Find a hybrid fund if you prefer a moderate level of risk. Therefore, how much risk you are willing to take should be the first consideration when choosing a fund.

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