Informed And Prudent Investment Decisions In The Dynamic Landscape Of Mutual Funds By Using Garch Index

Abstract

This research paper provides a concise overview of a risk analysis conducted on mutual funds utilizing the GARCH (Generalized Autoregressive Conditional Heteroskedasticity) index. The primary aim is to effectively evaluate and quantify the inherent risk associated with mutual fund investments, leveraging a robust statistical model for comprehensive insights. Through meticulous examination of historical data from various mutual funds, the study harnesses the power of the GARCH model to estimate volatility and risk characteristics accurately. This analytical approach furnishes investors with a sophisticated tool to comprehend and navigate the intricacies of risk exposure within their investment portfolios.

The analysis entails the segmentation of data into distinct training and testing sets, facilitating rigorous evaluation and validation of the predictive accuracy of the GARCH model. By comparing predicted outcomes with actual data, the study assesses the reliability and robustness of the model across different market conditions. Notably, the precision of predictions is found to vary contingent upon the proximity between testing and training data, underscoring the dynamic nature of market volatility and risk dynamics.

Furthermore, the analysis delves into three fundamental categories of mutual funds—Growth, Fixed Income, and Balanced Funds—to elucidate the distinct risk profiles associated with each. This segmentation serves as a crucial framework for investors, empowering them to tailor their investment strategies in alignment with their risk tolerance and financial objectives. Notably, the evaluation highlights the pivotal role of volatility in shaping investment decisions, with funds exhibiting lower deviations from predicted returns deemed as low-risk investments, while those demonstrating higher returns alongside elevated volatility are classified as high-risk options. Ultimately, this nuanced understanding of risk dynamics equips investors with the insights needed to make informed and prudent investment decisions in the dynamic landscape of mutual funds.