Published Jun 29, 2026 4 Min Read

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Introduction

Mutual funds are subject to market risk because their investments are affected by changes in stock prices, interest rates, economic conditions and other market factors. Market risk cannot be eliminated, but understanding it helps you make informed investment decisions.

  • Equity and debt mutual funds are both affected by market movements, although the level of risk differs.  
  • Every mutual fund scheme displays the SEBI-mandated riskometer, ranging from Low to Very High. 
  • You can invest through SIP or lumpsum, with SIPs starting from Rs. 100 per month on the Bajaj Broking website. 
  • Investors can choose from 4,000+ mutual fund schemes across equity, debt, hybrid, ELSS and thematic categories. 
  • KYC is mandatory before investing, as required by SEBI. 
  • Mutual fund returns are market-linked and are never guaranteed. 

Start your mutual fund investment journey on the Bajaj Broking website by completing your KYC, exploring 4,000+ mutual fund schemes, and investing through SIP or lumpsum.

What does 'mutual funds are subject to market risk' mean?

The phrase "mutual funds are subject to market risk" means that the value of your investment can increase or decrease because of changes in financial markets.

A mutual fund invests in securities such as shares, bonds or money market instruments. When the value of these investments changes, the fund's Net Asset Value (NAV) also changes. NAV is the price per unit of a mutual fund and is calculated once every trading day after the market closes.

This is why mutual fund returns cannot be guaranteed. Market conditions determine how the investments perform over time.

Why are mutual funds subject to market risk?

Mutual funds invest in market-linked securities. Their performance depends on how these investments perform under changing economic and market conditions.

Some common reasons include:

ReasonHow it affects mutual funds
Stock price movementsEquity mutual funds rise or fall with stock market prices.
Interest rate changesDebt mutual funds may gain or lose value when interest rates change.
InflationHigher inflation can affect company profits and bond prices.
Economic conditionsBusiness cycles and economic growth influence investment performance.
Global eventsInternational developments can affect Indian financial markets.
Currency movementsExchange rate changes may affect funds with overseas investments.

The impact of these factors varies across different mutual fund categories. Before investing, always check the SEBI-mandated riskometer to understand the scheme's risk level.

Why should you understand market risk before investing?

Understanding market risk helps you set realistic expectations about your investment. It reminds you that mutual fund returns are linked to market performance and may fluctuate over time.

BenefitWhy it matters
Better investment decisionsYou can choose funds that match your financial goals.
Appropriate risk selectionThe SEBI riskometer helps you understand the scheme's risk level.
Long-term planningYou are less likely to react emotionally to short-term market movements.
Suitable fund selectionYou can compare equity, debt and hybrid funds based on your comfort with risk.
Better diversificationSpreading investments across different fund categories may reduce overall portfolio risk.

On the Bajaj Broking website, you can compare 4,000+ mutual fund schemes across equity, debt, hybrid, ELSS and thematic categories before investing.

How do you manage market risk in mutual fund investments?

You cannot completely remove market risk, but you can manage it through informed investment decisions. Choosing suitable mutual funds, investing regularly and staying invested for the long term can help reduce the impact of short-term market fluctuations.

  1. Define your financial goals before selecting a mutual fund scheme. 
  2. Assess your risk appetite using the SEBI-mandated riskometer, which ranges from Low to Very High. 
  3. Diversify your investments across equity, debt or hybrid mutual funds instead of investing in a single category. 
  4. Choose between SIP and lumpsum based on your financial situation. SIP investments start from Rs. 100 per month on the Bajaj Broking website for eligible schemes. 
  5. Complete your KYC, which is mandatory under SEBI regulations before investing. 
  6. Review your portfolio regularly using the Dashboard, Portfolio, Orders and MF Profile available on the Bajaj Broking website. 
  7. Stay invested for the long term instead of reacting to short-term market movements. 

Conclusion

Mutual funds are subject to market risk because their investments are affected by changes in financial markets. Factors such as stock prices, interest rates, inflation and economic conditions can influence the value of your mutual fund units. While market risk cannot be avoided completely, understanding it helps you make better investment decisions.

Before investing, review your financial goals, investment horizon and risk appetite. Always check the SEBI-mandated riskometer, understand the scheme's investment objective and remember that mutual fund returns are market-linked and not guaranteed.

On the Bajaj Broking website, you can explore 4,000+ mutual fund schemes across equity, debt, hybrid, ELSS and thematic categories. After completing your mandatory KYC, you can invest through an SIP from Rs. 100 per month or make a lumpsum investment.

Frequently asked questions

Do all mutual funds carry market risks?

Yes. All mutual funds carry some level of market risk because they invest in market-linked securities such as equities, bonds or money market instruments. However, the level of risk varies by fund category. Equity funds generally carry higher market risk than debt funds, while hybrid funds combine both equity and debt. Before investing, always check the SEBI-mandated riskometer. On the Bajaj Broking website, you can compare different mutual fund categories to find one that suits your financial goals.


How does market risk affect mutual funds?

Market risk affects the value of the securities held by a mutual fund. When stock prices, interest rates, inflation or economic conditions change, the fund's Net Asset Value (NAV) may also change. Since NAV is calculated daily after market close, your investment value can rise or fall depending on market movements. Mutual fund returns are therefore market-linked and cannot be guaranteed.


Can market risks be avoided in mutual fund investing?

No. Market risk cannot be completely avoided because mutual funds invest in market-linked assets. However, you can manage its impact by diversifying your investments, choosing funds that match your risk appetite, investing through SIP or lumpsum as appropriate, and staying invested for the long term. The Bajaj Broking website allows you to invest through SIP from Rs. 100 per month for eligible schemes after completing your mandatory KYC.


What is market risk in mutual funds?

Market risk is the possibility that the value of your mutual fund investment may increase or decrease because of changes in financial markets. Factors such as stock price movements, interest rate changes, inflation, economic conditions and global events can all affect mutual fund performance. Before investing, review the SEBI-mandated riskometer to understand the scheme's level of risk.


Why do mutual fund advertisements say 'subject to market risk'?

Mutual fund advertisements include the phrase "mutual funds are subject to market risk" because it is a mandatory risk disclosure. It reminds you that mutual fund returns depend on market performance and are not assured. Reading the Scheme Information Document (SID), checking the SEBI riskometer, and understanding the investment objective can help you make an informed investment decision.

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Bajaj Finance Limited (“BFL”) is an NBFC offering loans, deposits and third-party wealth management products.

The information contained in this article is for general informational purposes only and does not constitute any financial advice. The content herein has been prepared by BFL on the basis of publicly available information, internal sources and other third-party sources believed to be reliable. However, BFL cannot guarantee the accuracy of such information, assure its completeness, or warrant such information will not be changed.

This information should not be relied upon as the sole basis for any investment decisions. Hence, User is advised to independently exercise diligence by verifying complete information, including by consulting independent financial experts, if any, and the investor shall be the sole owner of the decision taken, if any, about suitability of the same.

Disclaimer

Bajaj Finance Limited ("BFL") is registered with the Association of Mutual Funds in India ("AMFI") as a distributor of third party Mutual Funds (shortly referred as 'Mutual Funds) with ARN No. 90319

BFL does NOT:

(i) provide investment advisory services in any manner or form.

(ii) carry customized/personalized suitability assessment.

(iii) carry independent research or analysis, including on any Mutual Fund schemes or other investments; and provide any guarantee of return on investment.

In addition to displaying the Mutual fund products of Asset Management Companies, some general information is sourced from third parties, is also displayed on As-is basis, which should NOT be construed as any solicitation or attempt to effect transactions in securities or the rendering any investment advice. Mutual Funds are subject to market risks, including loss of principal amount and Investor should read all Scheme/Offer related documents carefully. The NAV of units issued under the Schemes of mutual funds can go up or down depending on the factors and forces affecting capital markets and may also be affected by changes in the general level of interest rates. The NAV of the units issued under the scheme may be affected, inter-alia by changes in the interest rates, trading volumes, settlement periods, transfer procedures and performance of individual securities forming part of the Mutual Fund. The NAV will inter-alia be exposed to Price/Interest Rate Risk and Credit Risk. Past performance of any scheme of the Mutual fund do not indicate the future performance of the Schemes of the Mutual Fund. BFL shall not be responsible or liable for any loss or shortfall incurred by the investors. There may be other/better alternatives to the investment avenues displayed by BFL. Hence, the final investment decision shall at all times exclusively remain with the investor alone and BFL shall not be liable or responsible for any consequences thereof.

Investment by a person residing outside the territorial jurisdiction of India is not acceptable nor permitted.

Disclaimer on Risk-O-Meter:

Investors are advised before investing to evaluate a scheme not only on the basis of the Product labeling (including the Riskometer) but also on other quantitative and qualitative factors such as performance, portfolio, fund managers, asset manager, etc, and shall also consult their Professional advisors, if they are unsure about the suitability of the scheme before investing.


Disclosure: Bajaj Finance Limited (BFL) is a distributor of Mutual Funds with ARN - 90319 and distributes mutual funds of Bajaj Finserv Asset Management Limited (BFSAMC). BFL receives commission towards distribution of mutual fund products. BFSAMC is a group company of BFL, carrying business on arm’s length basis without any conflict of interest and in accordance with the prevailing law / regulation.

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