July 13, 2024

Paull Ank Ford

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Can Mutual Funds Give You the Safety of Capital?

Mutual Fund: 5 smart strategies to optimise your mutual fund returns - The  Financial Express

Traditionally, Indians have preferred safe investments like Fixed Deposits (FDs) and Recurring Deposits (RDs) because these options are not linked to the market and offer capital security. Mutual funds suffered because some people believed they are risky investments because of their link to market forces. Mutual funds do come with a warning that they are subject to market risks, but as an investment, mutual funds can be structured as per your risk profile and financial goals, thus potentially offering inflation-beating returns. 

Here is everything you need to know about the safety of investing in mutual funds:

Are mutual funds safe?

Safety means different things to different people. Safety could mean preservation of principal or guarantee of returns and no fraud. Safe investments vary as per your risk profile, financial goals, time horizon, etc. 

Particularly, mutual funds are linked to the market, and hence, they are subject to market risks. However, this is true for all market-linked investments and not just mutual funds. As a wise investor, it is vital to check all scheme-related documents and understand the product’s risk before investing. You can assess the security of a financial product like mutual funds based on two factors:

Capital preservation

Mutual funds might not guarantee returns or the complete safety of your investments but minimize risk in other ways, such as through distributed investments as SIP (Systematic Investment Plans). Mutual funds are managed by professional fund managers who carefully pick securities to create a portfolio aligned with your risk tolerance and expected returns. Further, mutual funds are diversified, which seamlessly reduces the risk of market volatility. You also have the flexibility to switch your mutual funds and rebalance your portfolio as per market movement or changing preferences. 

Fraud prevention

Another factor that makes investments risky is the fear of losing money. However, mutual funds are secure in this sphere. To safeguard your interest, the Securities Exchange Board of India (SEBI) and the Association of Mutual Funds in India (AMFI) regulate mutual fund investments in India. These entities grant licenses and approval and provide adequate information about the mutual fund distributor. You can also find the risk score of a mutual fund distributor, past returns, etc. Mutual fund distributors have to get necessary approvals and follow due diligence before taking your money. Mutual fund distributors cannot run away with your money. Even if the mutual fund company is closed, you can redeem your units by approaching the asset management authority of the mutual fund. 

Should you invest in mutual funds?

Mutual funds are safe and potentially high-rewarding investments. Like all other investments, it is important to know the risks associated with mutual funds. As an investor, you should not be worried about short-term market volatility and focus on long-term goals. This will help generate significantly higher returns than other investments. 


Selecting a mutual fund option through a verified online investment app, such as Tata Capital Moneyfy App, and aligning the portfolio with your risk profile (aggressive, moderate, or conservative) and financial goals further reduce your risk. Also, research about the mutual funds on trusted platforms before investing. 

Informed investment and careful monitoring of your mutual fund investments can assure the safety of your capital.