Analysis of Risks in Fund Investments with Focus on Mutual Funds Research Proposal

Analysis of Risks in Fund Investments with Focus on Mutual Funds - Research Proposal Example Fund investments are subject to the financial dynamics of the markets (particularly the capital markets). There are various ways of fund investment. In today’s global environment almost all fund investment strategies, even those related to the pension funds, are increasingly involving the stock markets. Since mutual fund investments are the most popular options of fund investments, there is the need to analyze the risks entailed in it, although mutual funds are based on diversified portfolio and professional management systems that aim at mitigating the risks.With the lapse of time, risks entailed in the mutual funds are surfacing (although mutual funds have always been regarded as safer options of fund investment). Over the period of investment, there are significant alterations in the risk levels associated with mutual funds. Risk shifting might be caused by ill-motivated trades of unskilled or agency-prone fund managers who trade to increase their personal compensation. Alt ernatively, risk shifting might occur when skilled fund managers trade to take advantage of their stock selection and timing abilities. Stock selection directly relates to the analysis and effects of market risks, while timing abilities relate to liquidity risk. Timely liquidation issues concerning mutual funds are an important consideration.In this context, a relative analysis with respect to hedge funds becomes significant. In this regard, changing market conditions, or in other words, market risks are again considered to be very relevant (Bollen and Whaley, 2009). In detailing the market risks, the factor of rise and fall of the stock prices manifests as equity risk. Impact of contractual incentives on delivering higher risk-adjusted returns has been researched by Massa