Ch.2 · Advantages and Limitations of Mutual Funds · medium
What is the primary risk an investor in a debt mutual fund faces that a bank FD investor does not?
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EXPLANATION
Unlike a bank FD where the principal and interest are guaranteed (up to DICGC limits), a debt mutual fund's NAV can fluctuate. Rising interest rates reduce bond prices and NAV. Credit events (defaults) by issuers can also reduce NAV. This NAV risk is the key difference from FDs.
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