Mutual and other Funds

74. Explain the relationship between risk and return in respect of Fund 's performance.

Ans: A Fund's performance when viewed on the basis of returns alone would not give a true picture about the risk the Fund would have taken . For, there is a trade-off between risk and return; higher expected returns accompany greater risk, and vice versa.The main objectives of investing in a Mutual Fund scheme is to diversify risk.Though the Mutual Fund invests in a broad based and diversified portfolio. Fund Manager take different levels of risk in order to achieve the scheme's objectives. Hence , it is important to compare returns a Fund generates on the basis of the risk it incurs . In other words , the Fund's performance should be evaluated on the basis of risk -adjusted return.