As the name suggests, low-risk mutual funds are those investment options that carry minimal risk and a stable return assurance. Investments are primarily restricted to real estate, government bonds, etc. These funds are always a step ahead of inflation. To do so, they invest a major chunk of their total assets in debt instruments. Choosing the best low risk mutual funds can help stabilise the risk-reward ratio in an investor’s portfolio.
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Top 10 Low Risk Mutual Funds
| Fund Name | Category | Risk | 1Y Returns | Rating | Fund Size(in Cr) |
|---|---|---|---|---|---|
| Invesco India Arbitrage Fund | Hybrid | Low | 8.1% | 5 | ₹10,286 |
| Edelweiss Arbitrage Fund | Hybrid | Low | 7.9% | 5 | ₹7,671 |
| Bank of India Overnight Fund | Debt | Low | 6.8% | 5 | ₹90 |
| Mirae Asset Overnight Fund | Debt | Low | 6.7% | 5 | ₹2,408 |
| Axis Overnight Fund | Debt | Low | 6.7% | 5 | ₹9,846 |
| Kotak Equity Arbitrage Fund | Hybrid | Low | 8.0% | 4 | ₹31,453 |
| Tata Arbitrage Fund | Hybrid | Low | 8.0% | 4 | ₹7,980 |
| Nippon India Arbitrage Fund | Hybrid | Low | 7.8% | 4 | ₹11,945 |
| Axis Arbitrage Fund | Hybrid | Low | 7.7% | 4 | ₹3,523 |
| Aditya Birla Sun Life Arbitrage Fund | Hybrid | Low | 7.9% | 4 | ₹6,377 |
| View All |
Features of Low Risk Mutual Fund
Here are some features of the best low risk mutual funds –
Asset allocation: For low-risk mutual funds, a significant amount of assets are allocated to debt instruments.
Risk-reward ratio: The top low-risk mutual funds minimise or even eliminate the risk of investors. Fund managers place such assets in low volatile segments, where the likelihood of earning a hefty return is also low.
Taxability
Long-term Capital Gains Tax: If you hold your stake in the best low risk mutual funds for more than 3 years, returns are taxed at a flat rate of 20% with indexation benefits.
Short-term Capital Gains Tax: On the other hand, if one decides to sell the assets before the 3-year mark, returns would be added to his/her yearly income and taxed as per the applicable slab rate.
TDS: Tax deducted at source or TDS doesn’t apply to low risk mutual funds.
Who Are These Funds Suited For?
The best low risk mutual funds are suitable for new investors who lack the required knowledge to navigate the various other fund options safely. Predominantly, such investors have a limited risk appetite. Such a debt instrument is perfect if an individual is looking for the same level of security as an FD but also desires higher returns. These funds may also be ideal for those who want to preserve high liquidity in their investment portfolio.
Study some of the important considerations that an investor needs to undertake before low risk mutual fund investment –
Time horizon: Individuals with an investment horizon of less than a year can consider investing in these options. Such low risk funds can help one achieve his/her short-term financial objectives.
Investment goal: Investing in the best low risk mutual funds requires an extensive evaluation of one’s financial goals. It helps one determine the quantum of investment they need to make and the time period for which they want to hold their stakes.
Risk appetite: Even though these funds offer high liquidity, they remain unaffected by interest rate risk and credit risk, unlike liquid mutual funds. Nevertheless, inflation risk can reduce projected returns, which is why investors must be wary of the same. To scale investments, it’s necessary to determine the level of losses or reduction in gains one can digest shall a scheme underperform.
Past performance: Checking how such a low-risk fund has performed in the past three years against a benchmark index is crucial for guaranteed returns. Also, investors must figure out the expense ratio or the management cost of such funds before investing.
Credit rating check: Practised investors must go through the low-risk fund fact sheet carefully to know more about the duration and the credit rating of bonds in this portfolio.
Major Advantages
The best low-risk mutual funds in 2023offer the following benefits –
Fulfilment of short-term goals: As stated previously, these low-risk funds can be an ideal vehicle to achieve short-term financial objectives. Any goal that an individual wants to achieve within the next year can be fulfilled with these investment options.
Minimal risk: One of the biggest advantages of these funds is that they face minimal risk. Credit risk is eliminated for these options. Additionally, interest rate fluctuations do not hamper returns from these instruments. In most cases, low-risk funds also manage to offset the effects of inflation. However, a minimal risk from this factor remains.
Source of regular income: Besides securing the capital, the best low-risk mutual funds can act as a supplementary source of income as well.
Tax savings for certain income slabs: Individuals falling under the higher slab rates can save a significant amount in taxes by investing in these funds instead of FD. Such tax savings is more apparent in terms of long-term capital gains, which offer indexation benefits.
Higher returns when compared to fixed deposits: Bank fixed deposits are a preferred form of investment for individuals with minimal risk appetite. However, returns from fixed deposits tend to be restricted severely as well. Low risk mutual funds can offer the same level of security for the underlying capital while also offering increased returns.
Enhanced liquidity: Investors opting for low liquidity funds often face a severe cash crunch during financial emergencies. These low-risk funds ensure that liquidity is never a problem. Investors can quickly access their share to curtail emergencies.
Considering all of these aspects is crucial before investing in such a fund. Doing so will maximise ROI and help achieve investment goals.
Let's have a closer look
Now let us jump and check about these top 10 mutual fund schemes.
Invesco India Arbitrage Fund Direct Growth
Fund Performance: The Invesco India Arbitrage Fund has given 5.95% annualized returns in the past three years and 5.88% in the last 5 years. The Invesco India Arbitrage Fund belongs to the Hybrid category of Invesco Mutual Funds.
Minimum Investment Amount: The minimum amount required to invest in Invesco India Arbitrage Fund via lump sum is ₹1,000 and via SIP is ₹500.
| Min Investment Amt | ₹1,000 |
|---|---|
| AUM | ₹10,286Cr |
| 1Y Returns | 8.1% |
Edelweiss Arbitrage Fund Direct Growth
Fund Performance: The Edelweiss Arbitrage Fund has given 5.8% annualized returns in the past three years and 5.9% in the last 5 years. The Edelweiss Arbitrage Fund belongs to the Hybrid category of Edelweiss Mutual Funds.
Minimum Investment Amount: The minimum amount required to invest in Edelweiss Arbitrage Fund via lump sum is ₹100 and via SIP is ₹100.
| Min Investment Amt | ₹100 |
|---|---|
| AUM | ₹7,671Cr |
| 1Y Returns | 7.9% |
Bank of India Overnight Fund Direct Growth
Fund Performance: The Bank of India Overnight Fund belongs to the Debt category of BOI AXA Mutual Funds.
Minimum Investment Amount:
| Min Investment Amt | ₹5,000 |
|---|---|
| AUM | ₹90Cr |
| 1Y Returns | 6.8% |
Mirae Asset Overnight Fund Direct Growth
Fund Performance: The Mirae Asset Overnight Fund belongs to the Debt category of Mirae Asset Mutual Funds.
Minimum Investment Amount: The minimum amount required to invest in Mirae Asset Overnight Fund via lump sum is ₹5,000 and via SIP is ₹1,000.
| Min Investment Amt | ₹5,000 |
|---|---|
| AUM | ₹2,408Cr |
| 1Y Returns | 6.7% |
Axis Overnight Fund Direct Growth
Fund Performance: The Axis Overnight Fund belongs to the Debt category of Axis Mutual Funds.
Minimum Investment Amount:
| Min Investment Amt | ₹500 |
|---|---|
| AUM | ₹9,846Cr |
| 1Y Returns | 6.7% |
Kotak Equity Arbitrage Fund Direct Growth
Fund Performance: The Kotak Equity Arbitrage Fund has given 5.81% annualized returns in the past three years and 5.79% in the last 5 years. The Kotak Equity Arbitrage Fund belongs to the Hybrid category of Kotak Mahindra Mutual Funds.
Minimum Investment Amount: The minimum amount required to invest in Kotak Equity Arbitrage Fund via lump sum is ₹100 and via SIP is ₹100.
| Min Investment Amt | ₹100 |
|---|---|
| AUM | ₹31,453Cr |
| 1Y Returns | 8.0% |
Tata Arbitrage Fund Direct Growth
Fund Performance: The Tata Arbitrage Fund has given 5.72% annualized returns in the past three years and 6.01% in the last 5 years. The Tata Arbitrage Fund belongs to the Hybrid category of Tata Mutual Funds.
Minimum Investment Amount: The minimum amount required to invest in Tata Arbitrage Fund via lump sum is ₹5,000 and via SIP is ₹150.
| Min Investment Amt | ₹5,000 |
|---|---|
| AUM | ₹7,980Cr |
| 1Y Returns | 8.0% |
Nippon India Arbitrage Fund Direct Growth
Fund Performance: The Nippon India Arbitrage Fund has given 5.7% annualized returns in the past three years and 5.8% in the last 5 years. The Nippon India Arbitrage Fund belongs to the Hybrid category of Nippon India Mutual Funds.
Minimum Investment Amount: The minimum amount required to invest in Nippon India Arbitrage Fund via lump sum is ₹5,000 and via SIP is ₹100.
| Min Investment Amt | ₹5,000 |
|---|---|
| AUM | ₹11,945Cr |
| 1Y Returns | 7.8% |
Axis Arbitrage Fund Direct Growth
Fund Performance: The Axis Arbitrage Fund has given 5.69% annualized returns in the past three years and 5.71% in the last 5 years. The Axis Arbitrage Fund belongs to the Hybrid category of Axis Mutual Funds.
Minimum Investment Amount: The minimum amount required to invest in Axis Arbitrage Fund via lump sum is ₹5,000 and via SIP is ₹100.
| Min Investment Amt | ₹5,000 |
|---|---|
| AUM | ₹3,523Cr |
| 1Y Returns | 7.7% |
Aditya Birla Sun Life Arbitrage Fund Direct Growth
Fund Performance: The Aditya Birla Sun Life Arbitrage Fund has given 5.66% annualized returns in the past three years and 5.69% in the last 5 years. The Aditya Birla Sun Life Arbitrage Fund belongs to the Hybrid category of Aditya Birla Sun Life Mutual Funds.
Minimum Investment Amount: The minimum amount required to invest in Aditya Birla Sun Life Arbitrage Fund via lump sum is ₹1,000 and via SIP is ₹1,000.
| Min Investment Amt | ₹1,000 |
|---|---|
| AUM | ₹6,377Cr |
| 1Y Returns | 7.9% |
As a seasoned financial expert deeply immersed in the intricacies of investment, I bring a wealth of knowledge and experience to the table. My expertise extends across various investment instruments, with a particular focus on mutual funds, risk assessment, and portfolio management. I have a comprehensive understanding of market dynamics, investment strategies, and the nuanced details that make a significant difference in the financial landscape.
Now, let's delve into the article discussing low-risk mutual funds and dissect the key concepts presented:
Low-Risk Mutual Funds Overview:
Definition: Low-risk mutual funds are investment options designed to carry minimal risk while providing stable returns. They typically invest in secure assets like real estate and government bonds, often maintaining a focus on debt instruments.
Investment Strategy: These funds allocate a substantial portion of their assets to debt instruments, ensuring a conservative approach to minimize volatility. This strategy aims to keep the risk-reward ratio favorable for investors.
Features of Low-Risk Mutual Funds:
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Asset Allocation: Significant allocation to debt instruments characterizes low-risk mutual funds.
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Risk-Reward Ratio: These funds aim to minimize or eliminate investor risk by placing assets in low-volatility segments.
Tax Considerations:
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Long-term Capital Gains Tax: If held for over 3 years, returns are taxed at a flat rate of 20% with indexation benefits.
-
Short-term Capital Gains Tax: Selling before the 3-year mark results in returns being added to annual income, taxed as per the applicable slab rate.
-
TDS: Tax Deducted at Source doesn’t apply to low-risk mutual funds.
Suitability and Considerations:
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Target Audience: Ideal for new investors with limited risk appetite, seeking security akin to fixed deposits with higher returns.
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Considerations: Investors must evaluate their time horizon, risk appetite, past performance, and credit rating before investing.
Major Advantages:
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Fulfillment of Short-term Goals: Suitable for achieving short-term financial objectives within a year.
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Minimal Risk: Low-risk funds eliminate credit risk, manage inflation effects, and provide a steady source of income.
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Tax Savings: Higher slab rate individuals can save significantly on taxes, especially with long-term capital gains and indexation benefits.
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Higher Returns Than Fixed Deposits: Offers comparable security to fixed deposits but with potentially higher returns.
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Enhanced Liquidity: Ensures liquidity, allowing investors quick access to their shares during emergencies.
Top 10 Low Risk Mutual Funds (List):
- Invesco India Arbitrage Fund
- Edelweiss Arbitrage Fund
- Bank of India Overnight Fund
- Mirae Asset Overnight Fund
- Axis Overnight Fund
- Kotak Equity Arbitrage Fund
- Tata Arbitrage Fund
- Nippon India Arbitrage Fund
- Axis Arbitrage Fund
- Aditya Birla Sun Life Arbitrage Fund
Performance Metrics:
- Fund Name, Category, Risk, 1Y Returns, Rating, Fund Size (in Cr), and features are provided for each fund.
In-depth Fund Performance Analysis:
- Performance metrics such as annualized returns over three and five years, fund category, minimum investment amount, and assets under management (AUM) are detailed for each fund.
This detailed analysis equips investors with the necessary information to make informed decisions when considering low-risk mutual funds. It emphasizes the importance of understanding the fund's strategy, tax implications, and suitability based on individual financial goals and risk appetite.
