Mutual and other Funds

77. '' Mutual Funds also diversify of risk among the investors.'' Explain the importance of risk in Mutual Funds performance measurement.

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 objective of investing in Mutual Fund scheme is to diversify risk.Though the Mutual Fund invests in a broad based and diversified portfolio, Fund Managers 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.