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Low-Risk Mutual Funds: Meaning, Types, How to Invest

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July 25, 2022


What’s Inside

Low-risk mutual funds are ideal for investors prioritising capital preservation and stability over aggressive returns. These funds invest in safer, more stable assets, offering a consistent, less volatile investment experience.

Investing in low-risk mutual funds doesn't require explicit expert knowledge. You can find funds that match your investment objectives and risk profile by conducting a little research and risk assessment.

In this blog, we take you through an ‘everything guide’ about low-risk mutual funds: Their meaning, types, categories and the way to invest in them.

Some of the Best Low-Risk Mutual Funds







Size (Rs.)

Invesco India Arbitrage fund






Edelweiss Arbitrage fund






Tata Arbitrage fund






Mirae asset overnight fund






Axis overnight fund






Types of Mutual Funds

Types of Mutual Funds


Equity Funds

These funds primarily invest in stocks. The gains and losses depend on how the invested shares perform in the stock market.

Debt Funds

Debt funds invest primarily in fixed-income securities such as bonds, securities, and treasury bills.

Money Market Funds

These funds invest in the money market, also known as capital market or cash market.

Hybrid Funds

As the name suggests, hybrid funds is an optimum mix of bonds and stocks, thereby bridging the gap between equity funds and debt funds.

Growth Funds

These are aggressive mutual funds that aim for capital appreciation. They invest in companies that are expected to grow at an above-average rate compared to other companies.

Income Funds

Income funds aim to provide a steady income to investors by investing in stocks that pay dividends or bonds that pay interest.

Liquid Funds

These are a type of mutual funds that invest in short-term government securities and certificates of deposit.

Tax-Saving Funds

These mutual funds provide tax benefits to investors under the Income Tax Act, 1961.

Aggressive Growth Funds

These funds invest in stocks of fast-growing companies. They're considered higher risk than larger, more established growth funds.

Capital-Protection Funds

These are closed-ended mutual fund schemes with a focus to safeguard the principal amount while trying to deliver reasonable returns.

Fixed Maturity Funds

These are closed-ended debt funds with a fixed maturity date.

Pension Funds

These are investment plans that lets you allocate a part of your savings to accumulate over a period of time and provide you with steady income after retirement.

A Step-by-Step Approach to Investing in Low-Risk Mutual Funds

1. Research and Risk Assessment

Begin by researching different low-risk mutual funds available in the market and understand their investment strategies, historical performance, expense ratios, and the types of assets they hold.

Judge your risk tolerance and investment goals and determine whether these funds align with your financial objectives.

2. Make your Account and Choose Funds

To start investing in mutual funds, you must open an account with a brokerage firm. You can invest directly with the fund company or through a brokerage platform.

Choose funds that match your risk profile and investment objectives. Consider factors such as fund size and the fund manager's experience.

3. Amount

Next, decide how much money you want to invest. Some mutual funds require a minimum investment.

4. Purchase Shares

After your account is active, purchasing shares of the selected funds is possible. You can make a one-time investment or make regular contributions using low-risk SIPs.

5. Regular updates

Keep an eye on the performance of your chosen funds. While low-risk funds are designed to be more stable, it's still important to periodically review your investments and make adjustments if necessary.


In conclusion, low-risk mutual funds represent a viable investment option for those seeking stable returns with minimal risk. These funds, which include debt funds, money market funds, and fixed-income funds, offer a diversified portfolio that mitigates risk while providing steady growth. Investing in low-risk mutual funds is a straightforward process that involves understanding one’s financial goals, researching various fund options, and making informed decisions based on performance and risk factors. While the returns may not be as high as high-risk investments, the assurance of safety makes low-risk mutual funds an attractive choice for conservative investors. As with any financial decision, potential investors should consider consulting with a financial advisor to ensure that their investment choices align with their overall financial strategy.

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Frequently Asked Questions

1. What are the significant advantages of low-risk mutual funds?

Low-risk mutual funds provide capital preservation, reduced volatility, and steady returns and are suitable for risk-averse investors, making them ideal for those seeking stability and modest growth.

2. What are the parameters used to judge the risk of mutual funds?

Parameters used to judge the risk of a mutual fund include:

  • Standard deviation
  • Beta
  • Historical performance during market fluctuations
  • Asset allocation

Standard deviation measures volatility, beta gauges market sensitivity, and past performance help understand how the fund handled different market conditions.

3. What are the features of low-risk mutual funds?

  • Low-risk mutual funds prioritize capital preservation and stability over aggressive returns.
  • They invest in stable assets like bonds and dividend-paying stocks.
  • They offer reduced volatility, making them suitable for risk-averse investors.
  • These funds prioritize steady returns over aggressive growth.
  • They provide a sense of security while participating in the market.

4. Can low-risk mutual funds have high growth?

Low-risk mutual funds aim for stable returns and capital preservation, limiting growth compared to higher-risk investments. While some low-risk funds may experience moderate growth over the long term, they prioritize minimizing the potential for significant losses.

5. What is a low-risk SIP?

A low-risk SIP involves investing a fixed amount at regular intervals in mutual funds, focusing on capital preservation and stability. Such SIPs emphasize assets like bonds and stable stocks, catering to risk-averse investors seeking consistent returns while minimizing exposure to market volatility.


Investment and securities are subject to market risks. Please read all the related documents carefully before investing. The contents of this article are for informational purposes only, and not to be taken as a recommendation to buy or sell securities, mutual funds, or any other financial products.
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