Often consumers associate mutual funds with a degree of high risk. On the other hand it may also suggest that they are looking for those categories of schemes that will require a high risk appetite. To put it simply, “high risk mutual funds” are schemes that are majorly dependent on the market sentiment. Essentially consisting of equity funds, aggressive investors with some knowledge of how stocks and markets function.
What are High Risk Mutual Funds – Features
Some Mutual Funds come with significant volatility that may offer high returns but can also incur huge losses when markets crash, as seen currently due to the coronavirus scare. Equity Funds are generally considered high risk. Within that category as well, the funds that invest in mid cap or small cap companies (i.e. Mid Cap Fund and Small Cap Fund) score higher on the riskometer.
Large Cap funds are comparatively less risky and give more stable returns. Medium sized firms or those with small capitalization have opportunities to grow and its stock price can rise up giving high returns to the investors who invested in these shares early. However, equity prices may fall down if these companies fail to perform or market trends are bearish.
Asset Management Companies (AMCs)/Fund Houses undertake thorough research to ascertain the possibility of positive returns is comparatively higher before offering High Risk Mutual Funds to the investors.
Who Should Invest
- It is suitable for investors with a good understanding of the market and high risk appetite. It is important to actively track the performance of these funds
- High returns can only be generated over a period of time. Hence only if you can stay invested for the long term (minimum 5-7 years) you should pick a scheme with high risk
- All mutual fund schemes come with their own set of pros and cons which must be considered while investing and check if it is in sync with your financial goal. High Risk Funds aim for long term capital appreciation
- Some schemes also offer dividends. If you are looking for regular extra income you could think of investment.
- You can invest in High Risk Mutual Funds along with some stable and less risky funds such as Large Cap Funds or Debt Funds so as to maintain a balance of the risk-return ratio in the portfolio and provide some diversification to it
It depends on the investment mandate of the fund whether it is an equity or debt fund and hence receive the corresponding tax treatment. Usually, High Risk Funds invest in equities and equity related instruments and are taxed accordingly. If an investor has made a capital gain of ₹50,000 on investment in an equity fund, Short Term Capital Gains Tax of 15% would be levied if s/he withdraws the amount within one year of investment. The payable tax would be ₹7,500.
Also, if an investor has made a capital gain of ₹1.5 lakh on investment in an equity fund, and withdraws the amount after 1 year of investment, Long Term Capital Gains Tax of 10% would be levied on ₹50,000. ₹1Lakh is exempted from taxation. The payable tax would be ₹5,000.
Best High Risk Mutual Funds to Invest in 2020
|Fund Name||AUM||5 Year Return||7 Year Return|
|SBI Small Cap Fund||₹3,476 crore||7.39%||19.43%|
|Kotak Emerging Equity Fund||₹6,851 crore||3.28%||14.43%|
|Axis Midcap Fund||₹5,193 crore||5.13%||15.32%|
|DSP Midcap Fund||₹7,458 crore||3.96%||14.38%|
|Franklin India Prima Fund||₹7,475 crore||0.47%||12.59%|
(Source: Value Research, as on March 24, 2020, arranged according in order of 5 Year Returns)
It is suggested to invest through Systematic Investment Plan (SIP) in equity schemes as it enables the investor to build a habit of investing. Also, you can start investing with a minimum amount of ₹500 or ₹100 in some schemes. There is also a dual benefit of power of compounding as well as rupee cost averaging.
Know more about Benefits of SIP