Mutual fund risk: volatility, beta and the rest

Q: Standard deviation of a fund tells you its:

Volatility, how much it swings. Standard deviation measures volatility, the size of the ups and downs.

Q: A fund with a beta of 1:

Moves roughly in step with the market. Beta of 1 means it tends to move with the market, one for one.

Q: The risk that a bond issuer fails to pay is:

Credit risk. Credit risk is default risk, most relevant to debt funds.

Q: Putting too much of a fund in one stock or sector is:

Concentration risk. Concentration risk is the danger of too little spread. Diversification is the fix.

Understanding risk

The kinds of risk, and how it is measured

Return gets the headlines, but risk is what decides whether an investor can actually stay the course. The exam tests two measures and a short list of risks, so we make them concrete.

This lesson teaches a concept for the NISM Series V-A exam. It is education, not financial advice.

1
Risk is not just losing money, it is how much a fund's value swings along the way.
2
Standard deviation measures total swing, or volatility. Higher means a bumpier ride.
3
Beta measures how much a fund moves with the market. A beta of 1 moves in step with it.
4
Common risks include market, credit, interest rate, liquidity and concentration risk.

Rupee example

A fund with a standard deviation of 20 swings far more than one at 8, even if both end the year up.

Practice

🔥 0 streak

Real exam format. Answer by voice, tap, or press 1 to 4. No negative marking, so always attempt.

Answer by voice

Tap the mic and say A, B, C or D. Typing is optional.

Standard deviation of a fund tells you its:

Standard deviation measures volatility, the size of the ups and downs.

It is not a return, tax or cost measure.

A fund with a beta of 1:

Beta of 1 means it tends to move with the market, one for one.

Higher beta amplifies market moves; lower beta dampens them.

The risk that a bond issuer fails to pay is:

Credit risk is default risk, most relevant to debt funds.

The others describe price swings, ease of selling, and lack of spread.

Putting too much of a fund in one stock or sector is:

Concentration risk is the danger of too little spread. Diversification is the fix.

The others are unrelated ideas.

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NISM V-A syllabus

1What a mutual fund really is

2How a fund is built

3Who watches over it

4The offer document, decoded

5Getting funds to investors

6Selling the right way

8NAV, loads and the daily price

9Types of schemes, and picking one

10Return, risk and performance

11How gains are taxed

12Serving the investor

See the full roadmap →