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

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Created on
July 25, 2022

Summary

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

Fund 

Category

Risk

Return

(1-year)

Rating 

Size (Rs.)

Invesco India Arbitrage fund

Hybrid

Low

7.5%

5-star

6,038

Edelweiss Arbitrage fund

Hybrid

Low

7.2%

5-star

5,305

Tata Arbitrage fund

Hybrid

Low

7.1%

5-star

6,467

Mirae asset overnight fund

Debt

Low

6.3%

5-star

1,116

Axis overnight fund

Debt

Low

6.3%

5-star

8,018

Types of Mutual Funds

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 decide to 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.

Conclusion

Low-risk mutual funds prioritize capital preservation and stability, making them suitable for risk-averse investors. Money market, bond, balanced, and dividend funds are common types.

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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.

Disclaimer

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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