Top 10 Low Risk Mutual Funds to Buy in the Share Market in India 2024
Low risk mutual funds, true to their name, offer minimal risk and a guaranteed stable return. They primarily invest in real estate and government bonds to stay ahead of inflation. By focusing on debt instruments, these funds bolster your portfolio’s risk-reward balance. Selecting the top low-risk mutual funds can make all the difference in your investment journey.
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10 Best Low Risk Mutual Funds
Here is an educational list of low risk mutual funds. This is meant to be informative and not recommendatory:
| Fund Name | 1 Year Returns | Fund Size (in Cr) |
|---|---|---|
| Invesco India Arbitrage Fund | 8.1% | ₹8,732 |
| Edelweiss Arbitrage Fund | 7.9% | ₹6,984 |
| Bank of India Overnight Fund | 6.6% | ₹93 |
| Mirae Asset Overnight Fund | 6.6% | ₹1,253 |
| Axis Overnight Fund | 6.6% | ₹7,148 |
| Kotak Equity Arbitrage Fund | 8.0% | ₹27,412 |
| Tata Arbitrage Fund | 7.9% | ₹7,445 |
| Nippon India Arbitrage Fund | 7.9% | ₹11,137 |
| Axis Arbitrage Fund | 7.6% | ₹2,083 |
| Aditya Birla Sun Life Arbitrage Fund | 7.8% | ₹5,476 |
Disclaimer: Please note that the above list is for educational purposes only, and is not recommendatory. Please do your own research or consult your financial advisor before investing.
Overview of the Best Low Risk Mutual Funds
Here is a brief overview of the best low risk mutual funds listed above:
Invesco India Arbitrage Fund
Over the last three years, the Invesco India Arbitrage Fund has delivered an impressive 5.8% annualized return, and it performed even better over the last five years, with a return of 5.81%. This fund falls under Invesco’s Hybrid category. Investing in the Invesco India Arbitrage Fund is accessible to all, with a minimum investment of just ₹1,000 for lump sum investments and ₹500 for low risk high return SIP investments. It is on our list for safest mutual funds in India with low risk.
Edelweiss Arbitrage Fund
The Mirae Asset Overnight Fund falls under Mirae Asset Mutual Funds’ Debt category.You can start investing in the Mirae Asset Overnight Fund with just ₹5,000 for lump sum investments and ₹1,000 for SIPs. It is also one of the top risk free mutual funds in India.
Bank of India Overnight Fund
These funds invest in one-day bonds, ideal for money you might need in emergencies or have set aside temporarily. While the risk is extremely low, returns and capital safety aren’t guaranteed. Keep in mind, they offer only slightly better returns than a typical bank account and aren’t the path to wealth in the long haul.
Mirae Asset Overnight Fund
The Mirae Asset Overnight Fund falls under the Debt category of Mirae Asset Mutual Funds.To get started with the Mirae Asset Overnight Fund, you only need ₹5,000 for a lump sum investment or ₹1,000 for a low risk SIP.
Axis Overnight Fund
The fund allocates 4.74% of its investments to Government securities, making it an attractive choice for short-term investors seeking alternatives to traditional bank accounts and deposits.
Kotak Equity Arbitrage Fund
The Kotak Equity Arbitrage Fund delivered impressive annualized returns of 5.7% over the past three years and 5.78% in the last five years. This fund falls under the Hybrid category of Kotak Mahindra Mutual Funds. With a mere ₹100, you can enter the world of the Kotak Equity Arbitrage Fund through lump sum or low risk SIP plans. It is one of the top safe mutual funds in India with low risk.
Tata Arbitrage Fund
The Tata Arbitrage Fund falls under Tata Mutual Funds’ Hybrid category. For investing in the Tata Arbitrage Fund, you need a minimum lump sum investment of ₹5,000 or a minimum low risk SIP investment of ₹150. It is also one of the best mutual funds with low risk on our list!
Nippon India Arbitrage Fund
The Nippon India Arbitrage Fund has delivered impressive annualized returns of 5.58% over the past three years and 5.79% over the last five years. This fund is part of Nippon India Mutual Funds’ Hybrid category. To enter the Nippon India Arbitrage Fund, you only need ₹5,000 for lump sum investments and a mere ₹100 for SIP investments. It is also one of the least risky mutual funds on our list!
Axis Arbitrage Fund
In the past three years, the Axis Arbitrage Fund delivered a robust 5.55% annualized return, while over the last five years, it achieved an impressive 5.71% return. This exceptional
performer falls within the Hybrid category of Axis Mutual Funds. For those looking to invest, the entry point is accessible, with a minimum investment of just ₹500 for lump-sum investments and a mere ₹100 for SIP contributions.
Aditya Birla Sun Life Arbitrage Fund
In the past three years, the Aditya Birla Sun Life Arbitrage Fund has delivered a solid 5.53% annualized return, and over the last five years, it’s achieved an even better 5.67% return. This fund falls under the Hybrid category of Aditya Birla Sun Life Mutual Funds. For those looking to invest, the minimum amount needed for lump sum investments in the Aditya Birla Sun Life Arbitrage Fund is just ₹1,000, while for SIP, it’s also ₹1,000.
What are Low Risk Mutual Funds?
Low risk mutual funds provide relatively stable returns, but they aren’t entirely risk-free. They offer better returns and greater tax efficiency compared to traditional investments like fixed deposits, making them a solid choice for cautious investors.
Debt funds, a type of low-risk mutual fund, invest in money market instruments, government bonds, and more, resulting in lower associated risks. Within the debt funds category, you’ll find various schemes, including liquid funds, dynamic bond funds, gilt funds, and ultra-short-term funds.
While debt funds do carry some interest rate and credit risk, investing in higher-rated bonds can help mitigate these risks. These funds, with their minimal risk and focus on delivering optimal returns, serve as an excellent option for parking idle funds for short periods.
How do Low Risk Mutual Funds Work?
Low risk high return mutual funds in India provide a stable and secure way to grow wealth. Here’s a brief overview of how they operate:
- Diversification: These no risk mutual funds spread investments across assets like government bonds and money market instruments, reducing risk from market fluctuations.
- Professional Management: Skilled fund managers make informed investment decisions to optimize returns while managing risk.
- Risk Mitigation: Less risk mutual funds prioritize stable and reliable assets, with restrictions on risky investments.
- Liquidity: These funds are easy to buy and sell, providing quick access to your money.
- Returns: Low risk mutual funds with high returns offer regular dividends and aim for capital appreciation, making them attractive for conservative investors.
How to Invest in Low Risk Mutual Funds?
Investing in low-risk mutual funds is an excellent way to grow your wealth steadily without exposing yourself to excessive financial volatility. If you’re looking for a secure investment option that provides a reasonable return while safeguarding your capital, low-risk mutual funds are an attractive choice. In this blog, we’ll guide you through the steps to invest in these funds and build a safer financial future.
Define Your Financial Goals
Before diving into the world of low-risk mutual funds, it’s crucial to establish clear financial goals. Ask yourself what you aim to achieve with your investments. Whether it’s saving for retirement, building an emergency fund, or funding your child’s education, understanding your objectives will help you choose the right mutual funds safety to match your needs.
Understand Your Risk Tolerance
Low-risk mutual funds are designed to minimize the chances of substantial financial losses. However, it’s essential to know your personal risk tolerance. Are you comfortable with slight fluctuations in your investments, or do you prefer absolute stability? Your risk tolerance will influence your fund selection.
Research Different Low-Risk Funds
Low-risk mutual funds come in various forms, such as money market funds, bond funds, or dividend income funds. Conduct thorough research to understand the different options available. Compare their historical performance, expense ratios, and fund managers’ expertise.
Diversify Your Portfolio
Diversification is a fundamental strategy to reduce risk. Spread your investments across various low-risk funds to avoid putting all your eggs in one basket. This approach will further protect your capital while potentially increasing your returns.
Analyze Past Performance
While past performance doesn’t guarantee future results, it can provide valuable insights. Analyze the historical returns of the funds you’re considering. Look for consistent, stable growth patterns that align with your investment objectives.
Evaluate Fund Expenses
Every mutual fund comes with associated expenses, including management fees and operating costs. Keep an eye on the expense ratio, as lower fees can enhance your overall returns over time.
Features of Low Risk Mutual Funds
Discover the Benefits of Low Risk Mutual Funds:
- Optimal Risk Reward Ratio: Low risk funds invest in high-rated securities, providing a balance between safety and returns. Unlike volatile equity mutual funds, you can enjoy stability, making them perfect for short-term investments.
- Strategic Asset Allocation: These funds primarily focus on debt instruments, such as government bonds, T-bills, and debentures. Fund managers carefully select securities with excellent credit ratings and a history of strong returns, ensuring optimal performance.
- Diverse Fund Types: These funds offer a variety of schemes tailored to different investment goals. Choose from options like liquid funds, ultra-short-term funds, gilt funds, or dynamic bond funds to align with your objectives.
- Short-Term Gains: These funds are designed for short-term low risk investments, emphasizing stability due to their investments in high-rated and government securities.
- Capital Protection and Returns: Low risk funds aim to provide optimal returns while safeguarding your capital.
- Tax-Efficient Choice: Investors in higher tax brackets can benefit from tax savings by choosing low risk mutual funds over traditional bank deposits. Enjoy long-term tax advantages, thanks to the indexation benefits offered by debt fund investments.
Factors Affecting Investment in Low Risk Mutual Funds
Low risk Investing in very lower risk mutual funds involves several factors that influence your choices and outcomes. To help you navigate this terrain, let’s explore these key determinants in a more concise and organized manner:
Risk Tolerance and Investment Goals
Your personal risk tolerance and financial objectives dictate whether low risk mutual funds align with your investment strategy. If you prioritize capital preservation and are risk-averse, these funds are suitable. However, those seeking higher returns with more risk tolerance may need to explore other options.
Market Conditions
The overall economic and market climate has a significant impact on low risk mutual funds. They typically perform well in stable economies, while during times of uncertainty, they can outshine riskier investments due to their focus on stability and capital protection.
Interest Rate Environment
Interest rates directly affect returns, especially for funds invested in debt instruments. Rising rates can decrease bond values, affecting the fund’s net asset value, while falling rates can increase bond prices, potentially leading to capital gains.
Fund Management
The expertise and strategies of the fund manager play a critical role. Skillful managers who select high-quality securities and manage the portfolio effectively can significantly impact returns.
Expense Ratios
Keep an eye on expense ratios. Lower expenses can boost your returns by allowing you to retain more of your investment gains.
Tax Considerations
Understand the tax implications, such as capital gains taxes and dividend distributions, specific to low risk mutual funds for optimizing your after-tax returns.
Economic Indicators
Monitoring key economic indicators like inflation rates and GDP growth provides insights into the economy’s health and its potential impact on your low risk mutual fund investments.
Who Should Invest in Low Risk Mutual Funds?
If you’re a conservative investor, explore low-risk mutual funds. They focus on safeguarding your capital and providing consistent income. These funds include liquid funds, ultra-short duration funds, and money market mutual funds, all known for their low-risk profiles.
Liquid funds invest in short-term securities like treasury bills, commercial paper, and high-quality debt instruments, with a maturity period under 91 days. They offer flexibility with a short investment horizon of up to three months, providing an easy exit option compared to fixed deposits. Consider parking your emergency funds in liquid funds for easy access.
For a slightly longer horizon of up to six months, ultra-short duration funds offer liquidity and regular income, though they come with a bit more risk than liquid funds. They can potentially yield higher returns than traditional bank fixed deposits.
If you’re looking at a one-year investment horizon, money market funds are worth considering. They invest in short-term, low-interest-rate-risk instruments. These funds help you preserve capital and earn steady income while keeping your investments less vulnerable to market fluctuations.
How to Choose the Best Low Risk Mutual Funds?
Assess Your Investment Horizon
The first step in choosing the best high return low risk mutual funds is to assess your investment horizon. How long do you plan to keep your money invested? Low risk funds typically suit investors with a longer time frame, as they offer stability and security. The longer your investment horizon, the more you can benefit from these funds.
Define Your Investment Objectives
Clearly define your investment objectives. Are you looking for capital preservation, regular income, or a mix of both? Different low risk mutual funds cater to specific goals, so understanding your objectives will guide your fund selection.
Match Investment Style
Mutual funds come in various styles, such as equity, debt, or a blend of both. Your investment style should align with your risk tolerance and objectives. Low risk funds often focus on fixed-income securities and may be categorized as income or balanced funds. Make sure your investment style suits your needs.
How are Returns Calculated on Low Risk Mutual Funds?
Understanding how returns are calculated for low-risk mutual funds is essential for informed investing. Here, we’ll explore the key factors that impact return calculations:
- Net Asset Value (NAV): NAV reflects the fund’s current worth and changes daily. Your return is the difference between purchase and sale NAVs, plus any distributions.
- Dividends and Interest Income: Low-risk funds like liquid and money market funds earn returns through dividends and interest income. Calculate returns by summing these amounts received.
- Capital Gains: These gains occur when the fund manager buys and sells assets. Calculate them based on asset purchase and sale prices, considering transaction costs.
- Total Return: Combine NAV changes, dividends, interest income, and capital gains to determine the fund’s overall return.
Example of a Low Risk Mutual Fund Returns
To offer a more detailed perspective on the historical returns of the XYZ Low Risk Mutual Fund, here are the annual returns expressed in Indian Rupees (INR):
- Year 1: 4.5%
If you had invested ₹10,000, your return would have been ₹450.
- Year 2: 3.8%
A ₹10,000 investment would have yielded ₹380 in returns.
- Year 3: 3.2%
A ₹10,000 investment would have generated ₹320 in returns.
- Year 4: 3.6%
An investment of ₹10,000 would have returned ₹360.
- Year 5: 4.1%
A ₹10,000 investment would have provided ₹410 in returns.
These figures are for illustrative purposes and do not guarantee future results. Nevertheless, they showcase the consistent and steady returns historically delivered by the XYZ Low Risk Mutual Fund, making it an attractive choice for investors seeking capital preservation and stability in their investments.
Taxability on Low Risk Mutual Funds
The tax implications of debt fund investments vary based on the holding period. Here’s what you need to know:
- If you sell your debt fund investment within 3 years, your gains are subject to short-term capital gains tax at your individual slab rate.
- If you hold your debt fund investment for over 3 years and then liquidate it, you’ll be taxed at a fixed rate of 20%, and you can benefit from indexation to reduce your tax liability considering inflation.
- Starting from April 1, 2020, dividends from mutual funds or stocks are taxable at your individual slab rate. If your dividend amount from a single mutual fund or stock exceeds Rs 5000, a 10% TDS (Tax Deducted at Source) applies.
Challenges of Investing in Low Risk Mutual Funds
Investing in low-risk mutual funds can be a wise financial move for conservative investors. These funds prioritize the preservation of capital and regular income, making them an attractive option:
- Lower Potential Returns: Low-risk mutual funds are known for their stability, but this also means they typically offer lower returns compared to higher-risk investments. If you’re seeking substantial growth in your investments, you might need to consider alternative options with potentially higher risk.
- Inflation Risk: One of the primary challenges of low-risk mutual funds is the risk of not keeping pace with inflation. Inflation erodes the real value of your investments over time, and if your returns don’t outpace inflation, your purchasing power may decrease.
- Market Conditions: While low-risk funds aim to minimize market volatility, they are not entirely immune to it. Economic downturns, interest rate fluctuations, or changes in market conditions can affect the performance of these funds, even if to a lesser extent than high-risk investments.
- Interest Rate Risk: Low-risk mutual funds often invest in fixed-income securities. When interest rates rise, the value of these securities may decrease, leading to potential capital losses. It’s essential to understand how these safe mutual funds with high returns are managed in varying interest rate environments.
Benefits of Investing in Low Risk Mutual Funds
In 2024, the top low-risk mutual funds offer a comprehensive range of benefits:
- Swift Goal Attainment: You may acieve your short-term financial objectives within a year effortlessly.
- Minimal Risk: These safe mutual funds to invest in, eliminate credit risk, remain resilient to interest rate fluctuations, and mitigate inflation’s impact, although with minimal exposure.
- Supplementary Income: These funds not only safeguard your capital but also serve as an additional income source.
- Tax-Efficient Investments: Enjoy significant tax savings, especially for higher income brackets, leveraging long-term capital gains and indexation benefits.
- Superior Returns: These funds provide capital security along with enhanced returns compared to fixed deposits.
- On-Demand Liquidity: Say goodbye to cash crunches during financial emergencies; access your funds swiftly.
To maximize your ROI and meet your investment objectives, consider these aspects carefully before making your investment decisions.
To Wrap It Up…
In summary, when it comes to low-risk mutual funds, a thorough understanding of your investment options is crucial. This article has highlighted the top 10 low-risk mutual funds to provide you with valuable insights. It’s essential to remember that low-risk investments can offer more stability, but it’s equally important to assess your unique financial situation and consult with a financial advisor for a well-informed investment strategy. By diversifying your portfolio with low-risk mutual funds, you take a prudent step towards building a secure and prosperous financial future. Staying updated with market trends and adapting your investment strategy as needed is essential for long-term success in your financial journey.
FAQs
Debt funds, which include liquid funds, dynamic bond funds, gilt funds, and more, offer a low-risk investment option. They invest in money market instruments and government bonds, reducing the associated risk.
Before making investment decisions, investors should weigh the fund’s historical performance, expense ratio, the expertise of its manager, and its investment goals. To mitigate risk, diversify your portfolio by investing in a range of funds rather than putting all your money in one basket.
Assessing a mutual fund’s risk involves considering several factors:
1. Standard deviation, which measures volatility.
2. Beta, which gauges market sensitivity.
3. Historical performance in varying market conditions.
These parameters help us understand how the fund has managed risk.
Low-risk mutual funds focus on preserving capital and delivering steady returns, which might limit their growth compared to riskier investments. Although some low-risk funds can achieve moderate long-term growth, their primary goal is to minimize the chances of substantial losses.
When choosing from low risk category mutual funds, consider factors like your investment horizon, objectives, style, historical returns, and the fund managers’ experience. Before investing, balance these factors against your personal financial needs.
Mutual funds generally offer a safe investment option, ideal for diversification with low risk. However, mutual funds may not be the optimal choice for some investors, particularly regarding fees.
