Introduction to Financial Markets (405) — CBSE Class 10 board question

Mutual Funds do not provide assured returns as they invest in shares, debentures, and bonds, all of which carry risk. The main types of risk are:

1. Market Risk: If overall stock or bond markets fall due to economic factors, the value of the fund's portfolio drops, affecting performance.

1. Non-Market Risk: Bad news about an individual company pulls down its stock price, negatively affecting fund holdings. Diversification helps reduce this risk.

1. Interest Rate Risk: Bond prices and interest rates move in opposite directions. When interest rates rise, bond prices fall, affecting the fund negatively.

1. Credit Risk: When funds invest in corporate bonds, the company may default on interest/principal payments, causing the bond value and NAV of the fund to fall.

Source: Chapter 7 — Are there any risks involved in investing in Mutual Funds?

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• This is a standard 4-mark question; examiners expect all four types of risks named and briefly explained — one point per mark.
• Always include the introductory line that mutual funds do not guarantee returns — it sets context and shows understanding.
• Avoid mixing up benefits with risks; keep each point crisp (1–2 lines each).
• Mentioning that diversification reduces non-market risk is a value-add detail that examiners appreciate.