Market linked investments are volatile. What does that mean? It means that instead of receiving a fixed periodic return, your market linked investment—like a mutual fund—will see the daily price movement up and down.
Volatility, or how much the mutual fund’s net asset value (NAV) moves, can be seen as a risk to your portfolio. Some volatility is normal in products like mutual funds.
However, to assess risk, the volatility has to be seen in the context of the type of fund you invest in.
volatility, and ways of measuring it
Volatility refers to the change in price of a security.
For mutual fund holders this means measuring change in the NAV of the fund.
Mutual funds are a basket of securities. The daily value (NAV) of the fund is the aggregate value of the individual securities taken together.
In case of equity funds, volatility is difficult to ascertain in advance as individual stocks can be very volatile, depending on various factors such as: macro conditions, corporate action and earnings.
All equity stocks are subject to daily volatility and the degree of such volatility is determined from past price movement. However, forecasting that into the future may not always be accurate.
