What are the risks of investing into mutual investments funds?

This section has been prepared pursuant to requirements of the FSFM and international practice. It is aimed to provide investors with the notion of potential risks arising during investment. The risks are conventionally divided into macroeconomic (common for the entire economics of Russia and all of its subjects) and specific mutual funds related risks.

Risk associated with the general economic climate in Russia

The economics of Russia shows substantial dependence on the world markets' conjuncture and potential slowdown of economic growth in other countries. Other risks related to the general economic climate in Russia include:
- the risk of political changes,
- the risk of unfavorable (in terms of conditions crucial for business practices) changes in the legislation of Russia,
- the macro- and microeconomic risks (abrupt devaluation of the national currency, crisis on the government debt instruments' market, banking and foreign currency crisis).
With regard to economics Russia ranks among developing nations, whereas the money troubles or deterioration in the notion of risks related to investment in the developing countries may curtail the inflow of foreign investment to Russia and have adverse impact on its economy.
Negative trends for the national economics, for instance collapse of ruble exchange rate or drop in oil prices may affect the functionality of the securities market, which may cause decrease in value of investments.

Risk related to the legal system

The legal system in the Russian Federation is not complete. There is constant upgrade in legislation forming regulatory background necessary to support market economy. For this very reason the legal standards often mismatch or contradict one another. This may give rise to the instances of controversial or free interpretation and application of the laws and regulations governing investment in securities. Foreign legal companies also notice lack of experience among some judges and courts as far as interpretation of some provisions of the Russian legislation is concerned.

Issuer-related risk

One may encounter the risk of issuer's default when investing into public or corporate securities. This risk implies potential insolvency of security issuer, which may cause dramatically collapsed value (up to a complete loss of liquidity) of the security (in case of stocks) or impossibility of repayment (in case of debt securities). Although very few instances of insolvency have occurred among the listed securities on the Russian market, the risk theoretically exists. The management company does it's best to reduce the risk of default by acquiring securities of what they think are the most reliable issuers.

Taxation-related risks

The tax system of the Russian Federation is undergoing the evolutionary process and, as such, is thus exposed to various interpretations and continuous change. As a result, current interpretation of the laws and procedures can alter in future. There is also a chance that more random and heavy taxes affecting the activities of the issuers will be set. In some cases the Russian tax authorities applied individual regulations and statutes as if those had retroactive nature, although such actions appear to be unconstitutional. The owners of investment units must account for the taxation-related risks when making investment decisions.

Market risks

The investment units' owners are exposed to the risk of decreasing the value of their investments. The value of the securities may both grow and drop. Therefore the investment units' owners are facing the risk of a drop in the value of their investment. The prior rise in the value of the investment units does not mean this growth shall continue in the future. The management company does not guarantee investment profitability, but undertakes to apply its every effort to ensure sustainable growth in the value of the investment units. The state does not guarantee profitability of investing in the unit trusts. One should take a detailed study of the Rules of the Fund's trust management prior to the acquisition of the Fund's investment units.

The above-mentioned implies no goal to make you deny operations on the stock market; its sole mission is to make you notice that the risks make an integral feature of nearly any investment process. They cannot be ruled out completely. Therefore while selecting unit trusts an investor is actually considering various investment strategies. Bringing risks to the minimum level and choosing the acceptable risk-profitability ratio is the investor's major task.