It is known that equity and debt market are inversely related, i.e. when equity market falls, debt market yields better returns and vice-versa, and investments in Mutual Funds are no exception.
If losing capital invested is the yardstick of ‘risk’, then asset classes like equity is definitely the riskiest given the volatility in the market. Contrarily, money saved in bank accounts and sovereign bonds are the safest. Thus w.r.to mutual funds, risk is highest in equity funds and lowest in liquid funds.
However, the only reason why people invest in equity is for higher returns compared to debt/money market instruments in a regulated environment. Higher returns are seen by patient investors who take educated decision, diversify their portfolios and give time to their investments and remain invested for long term horizon rather than timing the market and gambling with hard earned money.