Mutual Funds that have prospectus, annual reports or statements of additional information written in such a way that they are difficult to understand should also be avoided. You should only those funds which have clearly defined portfolio.
A sector stock fund (which invests in a single industry, such as telecommunications) is at risk that its price will decline due to developments in its industry. A stock fund that invests across many industries is more sheltered from this risk defined as industry risk
Mutual funds face risks based on the investments they hold. For example, a bond fund faces interest rate risk and income risk. Bond values are inversely related to interest rates. If interest rates go up, bond values will go down and vice versa. Bond income is also affected by the change in interest rates. Bond yields are directly related to interest rates falling as interest rates fall and rising as interest rise. Income risk is greater for a short-term bond fund than for a long-term bond fund.
See whether the mutual fund you are planning to invest in is outperforming or under-performing with respect to the market. Good and safe mutual funds are those that consistently outperform the market. Changes in the net asset values (NAVs) of such mutual funds are consistently one step ahead of the market.When the market moves up, the NAV of risky or unsafe mutual funds may move up less than the market and may even move down despite a bull run in the market. Such under-performing mutual funds should always be eschewed when taking an investment decision.
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