Why mutual fund subjected to market risk

Some common risk factors associated with mutual funds include:

• Market risk: This is the risk that the value of the fund's investments will decrease due to changes in the overall performance of the securities market. If the value of a security decreases, then the value of a mutual fund's holdings will also decrease. The risk is greater for funds that invest in stocks because the market for these securities tends to be more volatile than other types of investments such as bonds or cash equivalents. This type of risk is generally more common for equity funds, which invest in stocks. Bond funds tend to be less susceptible to market risk because they invest in fixed-income securities. However, even bond funds can suffer losses if interest rates rise or the value of their underlying assets declines.
• Inflation risk: This is the risk that the value of a mutual fund's investments will decrease due to inflation. For example, if the fund's investments are made up of stocks and bonds, and inflation causes bond prices to drop while the value of stocks remains unchanged, then the fund will losemoney. The chance of this happening is increased when a mutual fund holds many securities in its portfolio.
• Tail risk: This is the risk that one or more of the fund's investments will decline in value, creating losses for investors. Funds can be negatively impacted by a market crash, in which case the value of investments may fall below what was initially invested. Market risk is also known as systematic or unsystematic risk. The fund's investments may lose value because the securities markets have declined or because the fund holds specific securities that have decreased in value.
• Liquidity risk: This is the risk that a fund’s shares could become very difficult to sell at a reasonable price. Liquidity risk can also be referred to as marketability risk or illiquidity risk. If a fund has a large number of shares outstanding, and many investors need to sell their shares at the same time, it may not be possible for all of them to do so. This could cause prices on the secondary market to fall below what they would be otherwise.
• Interest rate risk: This is the risk that the value of the fund's fixed income investments will decrease as interest rates rise. It is also the risk that the value of the fund’s floating-rate debt investments will decrease as interest rates rise. The opposite is true for funds with a negative duration, which means their values increase when interest rates fall and decline when rates rise.
• Credit risk: This is the risk that the issuer of a security held by the fund will default on its payments. If the issuer defaults, investors will not receive any return from their investment. The fund’s NAV can also decline if it invests in debt securities of companies with low credit ratings.
• Sector risk: This is the risk that the fund's investments in a particular sector, such as technology or energy, will underperform due to changes in that sector.
• Manager risk: This is the risk that the fund's performance will be negatively affected by the decisions or mistakes made by the fund manager. Risk of unforeseeable events: This is the risk that an investor cannot predict or foresee what will happen in the future, such as war or severe weather affecting a company’s operations. The fund's investment objective is to provide investors with a high level of current income while maintaining the potential for long-term capital appreciation. It invests primarily in common stocks and other securities issued by companies that have strong cash flow characteristics and that are expected to pay dividends over time. The fund may invest up to 25% of its assets in foreign securities, but these investments must be listed on major exchanges outside the U.S.
• Currency risk: This is the risk that the value of the fund's investments will be impacted by changes in currency exchange rates. The fund's investments may be affected by currency fluctuations. For example, the value of the U.S. dollar relative to foreign currencies can affect returns on international investments. The fund's investments may be subject to currency risk because they are denominated in foreign currencies. If the dollar strengthens against a foreign currency, investors will receive fewer dollars back after converting their investment into U.S. dollars than they would have if they had invested directly in U.S.-dollar-denominated securities of similar quality and maturity without being converted into another currency first. It is important for investors to consider these and other potential risks when evaluating a mutual fund and determining if it is appropriate for their investment goals and risk tolerance.