Standard warning
Risks common to all market-linked schemes
- Market risk — prices of securities fluctuate, sometimes sharply and for extended periods, in response to economic, political and company-specific events.
- Liquidity risk — in stressed conditions a scheme may find it difficult to sell holdings at fair value, which can affect redemption.
- Concentration risk — schemes concentrated in a sector, theme or small number of holdings move more sharply than diversified ones.
- Regulatory and tax risk — changes in law, regulation or tax treatment can affect scheme structure, returns and your post-tax outcome.
- Operational risk — failures in systems, processes or third-party service providers can cause delay or error.
Equity and equity-oriented schemes
Equity schemes can fall substantially in value over months or years. Mid-cap and small-cap schemes are more volatile than large-cap schemes and can be significantly harder to exit in a falling market. Sector and thematic schemes concentrate risk deliberately and are unsuitable as a core holding for most investors. Equity exposure is generally appropriate only where you can leave the money invested through a full market cycle.
Debt schemes
- Interest rate risk — bond prices fall when yields rise; the longer the portfolio duration, the larger the effect.
- Credit risk — an issuer may delay or default on payment. A scheme carrying higher yield is almost always carrying more credit risk, more duration risk, or both.
- Reinvestment risk — maturing instruments may have to be reinvested at lower yields.
Debt schemes are not deposits, do not carry an assured rate, and can deliver negative returns over short periods.
ELSS and lock-in
ELSS units cannot be redeemed for three years from the date of each investment. There is no premature withdrawal facility, no exception for hardship, and no loan against units during the lock-in. Do not invest money in ELSS that you may need within that period.
Fixed deposits
Company deposits carry credit risk: a stated interest rate is not a guaranteed one, and repayment depends on the issuer's financial position. Bank deposits are covered by DICGC insurance only up to the prescribed limit per depositor per bank. Premature withdrawal, where permitted, usually attracts a penalty.
Insurance
Insurance is a subject matter of solicitation. Cover, exclusions, waiting periods, sub-limits and claim settlement are governed by the policy document. Non-disclosure at proposal stage is the most common cause of claim rejection. Unit-linked policies carry investment risk borne entirely by the policyholder, and the sum assured is not the same as the fund value.
Broking, derivatives and commodities
Trading in equities, derivatives and commodities carries a high risk of loss. In leveraged segments, losses can exceed the amount deposited, and positions may be squared off without notice if margin obligations are not met. Broking services are provided by Aditya Birla Money Limited under its own registrations; read the risk disclosure documents issued by the broker and the exchanges before you begin. We do not provide trading calls or research.
NRI-specific risks
Repatriation depends on whether the investment was made on a repatriable or non-repatriable basis and on the FEMA rules in force. TDS is deducted at source on NRI redemptions. Currency movement between the rupee and your home currency can affect your outcome independently of scheme performance. Some AMCs do not accept investors resident in the United States and Canada.
The risk of doing nothing
Inflation reduces the purchasing power of money held idle. That is a real risk too, and the calculators on this website will show you its size over a long period. It is not, however, an argument for taking market risk with money you will need soon.
