A high-risk mutual fund is a fund that has a good potential to generate significant returns. However, it is highly volatile, and hence the risk levels are high.
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Note: As per SEBI’s mandate, mutual fund houses have to provide Product Labelling for every mutual fund. The risk-o-metre depicts the risk level of a scheme. On the basis of certain characteristics, the risk level of the fund is determined.
High-risk mutual funds have a high probability of generating significant returns. At the same time, these funds are highly volatile, and returns are not guaranteed. High-risk funds invest across volatile securities, and therefore the returns can sway in any direction.
Since the funds invest across high-risk securities, it is a good practice to track your investments closely. Tracking the funds from time to time will help you minimize any potential downside risk. Also, you can analyze the performance of the fund with the changing market dynamics.
Furthermore, it is almost a prerequisite for you to have a long-term investment horizon while investing in high-risk mutual funds. With a long-term investment horizon, the volatility of the fund can be averaged out. Therefore, the potential to earn higher returns maximizes.
As the saying goes, the higher the risk, the higher will be the returns. Therefore, high-risk mutual funds have a greater potential to earn significant returns than low or moderate risk schemes. However, it is important to note that risk is a relative parameter, and one should be careful while picking funds.
Following are the features of High-Risk Mutual Funds: