Risks of Investing in Mutual Funds. There are various risks to investing in mutual funds and other securities. The most common risks are set forth below. Please ensure you understand these risks as they apply to your investment choices. Your Advisor is equipped to discuss these in greater detail with you.
Risks of Investing in Mutual Funds. The major risk types associated with collective investment schemes, such as Mutual Fund(s), are set out below. Collective investment schemes (“Schemes”) such as Mutual Funds generally involve an arrangement that enables investors to ‘pool’ their assets. These assets are then professionally managed by an independent manager. Investments typically include government debt securities, bonds, money market instruments and quoted equities, but may include derivatives, real estate or any other asset. Schemes are exposed to the risks of the assets in which they invest. Depending on the type of asset, these may include market risk (the risk of fluctuations in the market price of the assets), interest rate risk (the risk of fluctuations in interest rates which affect the value of debt securities carrying a fixed rate of interest or zero coupon bonds), currency risk (where the assets are denominated in a foreign currency), credit risk (the risk of the issuer of the assets becoming insolvent) and regulatory risk (for example, assets issued by banks could be subject to bail-in). These risks may be mitigated to the extent that the Scheme holds sufficiently diversified underlying assets. The performance of a Scheme is dependent on the Scheme manager’s choice of appropriate components and on the relative performance of each component. Schemes may also make investments in volatile and/or illiquid markets and it may be difficult or costly for positions in such markets to be opened or liquidated. In addition, Schemes may utilise strategies which could magnify adverse market developments and losses. These strategies include, amongst others, leverage, which has the potential to magnify both gains and losses, short-selling, investment in sub-investment grade or non-readily realisable investments, uncovered options transactions, options and futures transactions and foreign exchange transactions and the use of concentrated portfolios. Under certain strategies, the Customer’s entire investment could be at risk. The opportunities to realise an investment in a Scheme may also be limited in accordance with the terms and conditions applicable to the Scheme and subject to long periods of advance notice, during which the price at which investments may be redeemed may fluctuate or move against the Customer. There may also be no secondary market in the Scheme, in which case an investment in such Scheme may be (highly) illiquid. The valuation of a Scheme is generally controlled by the Schem...
