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Low-risk Mutual Funds


There are no such things as a ‘risk-free’ mutual fund investment, especially in equity-oriented funds as mutual funds are related to stock markets. Equity-oriented funds invest in stocks of varied market-cap sizes, where, market-cap means market-capitalisation or a company’s asset size. There are large-cap stocks which are the biggest corporate names in India, then there are mid-cap stocks which are small to medium enterprises. The third group is small-cap stocks which are starting up or developing enterprises.

Investing in primarily large-cap mutual funds have low-risk but give you steady returns, while investing in primarily mid and small-cap funds are extremely risky, but the returns on investments are conversely higher. There are also multi-cap and large and mid-cap funds (mixed portfolios) which balance the risk to reward proportion.

What if you wanted not only to minimise investment risk but also expect returns? There are many low-risk mutual funds which offer good returns on your investment.

There are debt-oriented mutual funds which are low-risk but give low returns, on the other hand, there some mutual funds which have low-risk and give high returns. The latter can sometimes be called hybrid mutual funds. Debt-oriented mutual funds invest largely in debt or related underlying securities in fixed-income instruments and money-markets. Hybrid mutual funds, as the name suggests, combine equity and debt in their portfolios, the proportion of these funds are tilted as either 60%-80% equity or 50%-60% in debt.

Low-risk Mutual Fund Plans Recommended by Angel BEE

There are many great low-risk mutual funds available to invest in, debt-oriented funds have minimum risk, but also give low returns. There are low-risk, equity-oriented funds as well, some are purely equity-based, and some are Hybrid. Equity-based funds which are less risky are usually Large-Cap Mutual funds, these funds invest in the top 100 stocks listed on the stock exchanges of India. These, however, do not give high returns but create long-term steady wealth through consistent returns. Hybrid funds have low-risk and yet, give high returns over varied investment periods.

There are two ways in which you can invest in these low-risk funds; you can either invest systematically via SIP or make a lumpsum payment. Some SIP-based hybrid plans give high returns but require longer-term investment holding periods. According to past performance, these funds have given returns in the range of 15%-20% over a period of 10-20 years. There also some which do not require such a long holding period. They can give returns between 12%-15% in a period of 5-10 years. Here are our recommendations:

Top Low-risk Mutual Funds in India

The top or best low-risk mutual funds will give you high returns in any market condition, over a period of 1-5 years. Before you go through our list, you need to understand, they are not entirely risk-free, but have a lower risk in comparison to other fund types.

Some of the common parameters for selecting these funds are:

  • Debt Equity Ratio: The allocation of the fund portfolio is 60% to 70% in equity and the remaining in debt.

  • Low Risk and High Returns: These funds give relatively higher returns with a lower risk involved.

  • Investment Holding Period: The holding period of these funds is 5-10 years in which returns are between 12% to 15%.

  • Past Performance: These funds have performed better than their counterparts in the short, medium and long terms, that is, one year, three years and five years.

  • Fund Rating: These funds have been given top rankings (of 1 or 2) by CRISIL—India’s credit rating agency for mutual funds.

Everything You Need to Know About Low-risk Mutual Funds

Here’s what you need to know about these funds:

  • Debt or Equity: Low-risk mutual funds can be either debt-oriented or equity-oriented, the point that they differ on is, the rate of returns on investment. Debt-oriented funds have low-risk and low returns. Some purely equity-oriented funds are less risky and give steady to moderate returns, these are also called large-cap funds. Funds that are less risky yet give substantially high returns, can also be called hybrid funds. These fund portfolios comprise 60% to 70% allocation in equity or 40%-50% allocation in debt.

  • Investment Holding Periods: Funds that have low-risk require varied investment holding periods to realise high returns on investment. Some SIP funds require a minimum investment holding period of 10-20 years, while some funds (may be SIP or lump-sum) realise returns within 3-5 years.

  • Systematic Investment Options: You can invest in these funds either in lump-sum or through systematic payments. One thing to note, however, some SIP funds require a minimum of 10 years to give expected returns on investment.

Why Low-risk Mutual Funds?

Most funds that are less risky also give lower returns, some, on the other hand, give relatively higher returns. The latter type of low-risk funds can also be called Hybrid funds. Here’s why you should invest in them:

  • Exposure to debt and equity: The best funds will have 60% to 80% exposure to equity and the balance will be allocated to debt securities. In this way, you can get higher returns from your equity allocations yet, minimise risks with the debt allocation.

  • Higher Rate of Returns at Comparatively Lower Risk: The best from these funds are evaluated over one, three and five-year tenures. Most will give you annualised returns in the range of 12%-15% within five years, which comparatively higher than their counterparts.

  • Require Low to Moderate Risk Appetite: If you are risk-averse or have a very low appetite for risk, then these types of funds are ideal for you.

  • Superior Fund Rating Based on Past Performance: Most of these funds rank among number 1 or 2 with CRISIL— (one of the credit rating agencies for mutual funds). This also means the funds’ performance is evaluated over short, medium and long investment periods.

Get Better Returns with Low-risk Mutual Funds

Low-risk mutual funds are of two types, ones that give you low returns and those which give you high returns. Debt-oriented funds are the ones which have the least risk, but require longer investment holding periods and give low returns. Large-cap funds are equity-oriented but have lower associated risk. These give you moderate and steady returns, but also need loner investment periods to get good returns.

Hybrid funds are those which have 60%-80% of their asset composition in equity and equity-related securities, or 40%-50% in debt and debt-related securities. The best asset allocations are in those funds which have a 70%-80% in equity and the remaining in debt. These will give the highest returns (in comparison) within short to medium time frames.

Past performance of these funds has proven, you can get returns as high as 12%-15% in a five-year period, with minimum risk involved. The reason is, these portfolios are not as susceptible to market risks as pure equity portfolios and are not as slow-performing as debt portfolios.

The risk appetite for these funds need only be moderate, in fact some fund compositions cater to completely risk-averse investors as well. So, if you’re looking for good returns without bearing too much risk, these funds are ideal for you.


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