Risk Factors to look before Doing SIP- minimum 10 years

When considering a 10-year SIP (Systematic Investment Plan) in Bandhan Mutual Funds, it’s important to evaluate the following key risk factors, as they will directly impact your long-term investment outcome:

Table of Contents

1. Market Risk

Equity Mutual Funds (including most long-term Bandhan schemes) are subject to volatility in the stock market. Economic downturns or market crashes can cause temporary or even prolonged losses.
Debt Funds, such as Bandhan Government Securities Fund, are exposed to interest rate risk and credit risk but tend to be less volatile than equities.

2. Interest Rate Risk

For debt funds, changes in interest rates affect bond prices. If rates rise, the prices of existing bonds fall, potentially reducing fund returns (more relevant for Bandhan’s gilt and debt funds).

3. Fund Manager Performance & Strategy

Consistent returns depend on the fund manager’s skill. Underperformance or style drift (deviating from stated strategy) can affect your returns. Past performance persistence is seen in Indian equity funds, but abnormal returns are less common.

4. Scheme-Specific Risks

Each Bandhan scheme has its own level of diversification, sector allocation, and asset quality. Concentration in particular sectors or lower-quality bonds can heighten risk.

5. Liquidity Risk

In extreme market scenarios, mutual funds may face difficulty in selling assets to meet redemption requests. This risk is higher for funds invested in less-liquid securities.

6. Regulatory and Policy Risk

Changes in government regulations, tax norms, or macroeconomic policies can impact the returns and functioning of mutual funds.

7. Inflation Risk

Over a 10-year horizon, inflation can erode real returns. Equity funds generally outpace inflation, but debt funds and low-return funds may not always keep up, especially during high-inflation periods.

8. Systematic Risk vs. Unsystematic Risk

Systematic risks (market risks, economic downturns) affect all investments. Unsystematic risks (scheme/fund manager risks) can be minimized through diversification but still need monitoring.

9. Volatility and Downside Risk

Long-term SIPs add rupee cost averaging benefits, but investors must be ready to see periods of negative returns, especially during market corrections.

10. Personal Risk Tolerance and Goals

Your own risk appetite should match the scheme choice. If you need capital safety or have low risk tolerance, equity-oriented funds may not be suitable for you.

Evaluation and Monitoring:
Regularly review your SIP and chosen Bandhan scheme, especially during major market events. Assess risk measures like volatility, Sharpe ratio, and Value-at-Risk (VaR) provided in the fund’s factsheet to clarify the risk/return trade-off.

By carefully considering these factors, and periodically reviewing your investment, you can manage potential risks and maximize the benefits of a 10-year Bandhan Mutual Fund SIP investment.