What are Low Risk Mutual Funds?
Mutual Funds with minimal risk factors involved are called Low-risk Mutual Funds. These funds come with higher returns assurance as they predominantly invest in Government Bonds of infrastructure, real estate, etc. The risk-free or low risk investment portfolio of these funds ensure that either they match or stay ahead of inflation. As these funds have a major portion of total assets allocated into debt instruments, the investment horizon is relatively low.
Top 5 Low Risk Mutual Funds
Here is a list of 5 best low risk mutual funds in India belonging to different categories that involve relatively low risk and are best suited for investments in 2020:
|Fund Name||3 Year Returns (%)||5 Year Returns (%)||NAV (Rs.)|
|Axis Liquid Fund||6.98||7.39||2176.78|
|Indiabulls Short Term Fund||7.11||8.54||1714.06|
|Franklin India Liquid Fund||7.07||7.49||2943.77|
|HDFC Short Term Debt Fund||7.78||8.36||22.40|
|Aditya Birla SL Money Manager Fund||7.69||7.85||267.07|
(Data as on 15th January 2020; Source- Value Research)
Who should invest in Low Risk Mutual Funds?
- Mutual Funds associated with lower risks are majorly preferred by new investors who are not familiar with how the market functions and what precautions must be taken to avoid risks
- If your risk appetite is low, you can choose such a fund and earn higher returns than bank FDs
- Investors willing to earn optimal returns in a short duration should invest in low risk mutual funds. These funds are highly liquid with maturity period ranging from 91 days to 1 year
- Investors wanting to invest in a tax efficient investment scheme other than fixed deposits can opt for low risk mutual funds
Features of Low risk investments
- Low Risk Mutual Funds are known as ideal monetary reserves for capital appreciation via timely liquid investments
- These fund schemes have relatively higher chances of guaranteed returns because the assets are predominantly allocated in Government bonds, debentures, treasury bills, money market instruments etc.
- The fund managers undergo a critical analysis of different securities and place the assets into securities based on historical returns and credit ratings. Generally, the funds are invested into high credit quality instruments to generate assured returns
- It is wholly assured that the assets are placed in less volatile sector as compared to equity schemes
- The investment tenure ranges from 3 months to 3 years in short duration schemes, 3 to 5 years in medium-term funds
Advantages of Low Risk Mutual Funds
- Lower market risks
- Moderate but stable returns over the tenure
- Easy liquidity to meet urgent financial requirements
Tax Treatment of Debt Funds
Debt fund returns can be subject to capital gains tax and dividend distribution tax (DDT). If debt funds are sold within 3 years of purchase, the gains are taxed at your slab rate (short term capital gains tax). If they are sold after 3 years of purchase, they are taxed at 20% and you are given the benefit of indexation (which reduces your tax liability to account for inflation).
Dividends on debt funds are taxed at 25% Dividend Distribution Tax (DDT). After adding surcharge and cess, this tax works out to around 29%. DDT is deducted by the fund house before paying the dividend and hence dividends from debt funds are tax-free in the hands of the investor.
On the other hand, there is no deduction in the case of capital gains. Investors have to calculate their own tax liability and pay the applicable tax on their gains.
Know More About : How are Mutual Funds Taxed When Sold?
How to invest in Low Risk Mutual Funds online?
- Sign Up/Sign In to Paisabazaar.com and go to ‘Direct Funds’
- Click on the section of ‘Low Risk Mutual Funds’
- Select the fund in which you want to invest and look at the details. You can also compare similar schemes as well as use SIP Calculator or Lumpsum Calculator to estimate the future value of your investment.
- Click on ‘Invest Now’, select either Lump sum or SIP
Why Should you Choose Paisabazaar?
- Trusted website, no commission charges and no paperwork
- You can compare more than 1,700 Funds at one platform instead of visiting the website of each AMC and then searching for numerous funds
- Easy to browse as Funds are segregated under Equity, Debt, Large Cap, ELSS, etc. You can further add filters of ratings, returns, fund houses
- Important scheme details such as latest Net Asset Value (NAV), expense ratio, assets under management, etc are also available on the portal, making it easier for consumers to pick a suitable fund.
Frequently Asked Questions
Q. What are the best low risk mutual funds in India for 2020-21?
Ans: There are many funds tagged under the category of low risk funds. In FY 2020-21, you can consider investing in Axis Liquid Fund, Indiabulls Short Term Fund, Mahindra Liquid Fund, Nippon India Liquid Fund or Aditya Birla Sun Life Money Manager Fund.
Q. How to pick the best low risk fund?
Ans: Choice of investment depends upon different factors such as the investment horizon, objectives of investment, style of investment, fees and loads, historical returns, fund managers etc. So, to pick the best low risk fund, you must analyze all these above mentioned factors before deciding the best investment option for your financial goals.
Q. What type of investment has the lowest risk?
Ans: Because of the availability of different investment options on the market and unpredictable economic climate, it is difficult to identify one safest option. But, there are some options which are clearly safer than the others such as Certificate of Deposits, Municipal Bonds, Bank Fixed Deposits etc.
List of Top Performing Low Risk Mutual Funds to Invest in 2019-20
|Fund Name||Risk||3Y Returns||5Y Returns|
|Indiabulls Short Term Fund||Low||7.28%||8.64%|
|Reliance Liquid Fund||Low||7.09%||7.57%|
|IDBI Liquid Fund||Low||7.07%||7.50%|
|IDFC Government Securities Fund – Constant Maturity Fund||Low||10.74%||10.44%|
|UTI Money Market Fund||Low||7.65%||7.89%|
|SBI Magnum Ultra Short Duration Fund||Low||7.66%||7.87%|
|Edelweiss Liquid Fund||Low||7.04%||7.33%|
|Jm Liquid Fund||Low||7.08%||7.56%|