Risk isn't the enemy. Misunderstanding it is

Summary: Most investors chase returns instead of asking how much risk they can truly handle. This piece explains why risk is about behaviour, time and drawdowns—not labels—and how the right equity-debt mix matters more than picking the “best” fund. Most investors don’t ask me, “What is the right level of risk for me?” They ask, “Which fund will give the highest return?” Ideally: high return, low risk and no losses – the financial equivalent of eating gulab jamun daily and still losing weight. If you invest in mutual funds, you can’t avoid risk. But you can understand it and choose the kind of risk that aligns with your goals and nerves. That’s what we do every day inside Value Research Fund Advisor (VRFA): not remove risk, but make it visible, understandable and manageable. Risk is how your money behaves, not a sticker on the box People treat risk as a label: “Low”, “Moderate”, “High”. If it says “Low”, they think nothing bad can happen. If it says “High”, they expect guaranteed high returns. In reality, risk is simply: how much your fund can fall, how often, for how long, and what you will do when that happens. Take a typical flexi-cap fund. In a bad phase, it might fall over 50 per cent from peak to bottom and take around three years to get back. An investor puts Rs 10 lakh into a good flexi-cap fund at the start of a bull market. In the next deep correction, the fund value drops to about Rs 4.3 lakh (a fall of a little over 55 per cent), then recovers over around three years to more than Rs 10 lakh. The real damage usually doesn’t come from that fall; it comes from the investor panicking in the middle, stopping SIPs or

This article was originally published on January 01, 2026.