How does the risk of investing in Mutual Fund decrease over long-term?


Mutual Funds Sahi Hai?

Mutual Funds invest in marketable securities that trade on various exchanges. Hence the NAV of a mutual fund moves up or down daily depending on how the benchmark index moves. This results in volatility in your mutual fund investments over short-term. If you had to look at the average return from a mutual fund investment over a short period of time, the return could be positive or negative depending on how the benchmark index has performed during the same time period.  

When you plot the movement of an index or the NAV of a scheme over a short period, you will see many sharp spikes indicating high volatility. You can not rely on an investment that’s so volatile to meet your financial goals which are in a way fixed in terms of time and value. But if you looked at the performance of the same index or mutual fund NAV over a longer period of 5-10 years, you’ll notice that the spikes in the graph are muted. If you change the time period to 10-15 years, you’ll find the volatility of return is significantly reduced.  

Over long-term, market indices move upward and hence the average return is usually positive for this period. However, average return from the same index can either be positive or negative over a short-term. 

I'm ready to invest