What is one characteristic of equity mutual funds?

Equity mutual funds primarily invest in stocks, which means they are subject to fluctuations in market prices. One notable characteristic of equity mutual funds is that they carry both market and industry risk.

Market risk refers to the potential for an entire market or a segment of it to decline, affecting most stocks within that market. This risk is tied to broader economic factors, such as changes in interest rates, political events, or economic downturns.

On the other hand, industry risk is specific to a particular sector. For example, if a mutual fund is heavily invested in technology stocks and there is a downturn in that sector, the fund’s performance will be impacted.

Thus, equity mutual funds are exposed to both types of risk, which can affect their performance and returns. This dual exposure plays a crucial role in understanding the investment profile of equity mutual funds, making the correct option a vital piece of knowledge for anyone involved in financial planning or investment management.