How hybrid funds can mitigate various investing risks

livemint.com:

At record index levels and indeed across market cycles, most investors tend to focus entirely on the returns that an investment could generate. The underlying risk in achieving a specific return is often ignored.

While returns may drive investment decisions, the true challenge lies in understanding and managing the various risks—whether personal, portfolio-related, behaviour and even perception.

A broader classification of risks could be on what we know, what we don’t know and unpredictable events.

Managing risk is the key to generating optimal returns over long term, so that all the financial goals of an investor are met within the requisite timelines.

Also read: Glamorous and tempting: But is direct stock investing suitable for everyone?

Here's how risks can be managed systematically. 

Equities are long-term wealth generators, with the Sensex delivering approximately 15% compound annual growth rate (CAGR) over the past 40 years.

Stock prices are shaped by corporate earnings, industry trends, economic outlook, and broader market cycles. When investors buy companies with high growth potential, led by strong management teams and capital efficiency, at the right valuations, they can achieve healthy returns.

Fund managers mitigate the known risks by focusing on the right sectors and stocks, taking calculated risks, and making decisions based on fundamentals rather than market narratives.

However, unknown risks such as election results, geopolitical tensions, interest rates, and regulatory changes require careful consideration. These risks can be managed by portfolio diversification and disciplined investment practices.

Unpredictable risks include war outcomes, global investors’ risk perception, China and US trade and macro