Mutual fund Unlocked: Mark to market risk
We hear a lot the disclaimer that all mutual fund investments are subject to market risk, then what does this market risk mean? Mark-to-market risk is what this disclosure is trying to warn about. The daily swings in the net asset value (NAV) which reflects the change in value of your scheme, be it equity or debt is referred to as marking to market. Let's explore what mark to market means.
The term Mark-to-market is nothing but the reasonable value of an account that can vary over a period depending on assets and liabilities. The measure provides the genuine estimates of the financial conditions.
The securities in which the scheme has invested are linked directly to the market. Everyday the prices of these securities fluctuates which further affects the NAV of the fund. This is not that simply in the case of debt funds because bonds are associated with regular pay-outs, and return of principal. But these funds also have mark-to-market risk.
It is one of the key risks which investors should definitely look into while investing in any equity or debt funds.