Sharekhan Blog

What are Mutual Funds Without Risk?

  • Feb 26, 2024

The main types of investments are government bonds, real estate, etc. These savings consistently outpace inflation. They use a sizable portion of their overall assets, mostly in debt instruments, to do this. An investor's portfolio's risk-reward ratio can be stabilized by selecting the best, safest mutual funds. So, let’s discuss all about low-risk mutual funds.

Top 10 Best Low Risk Mutual Funds

  1. Invesco India Arbitrage Fund            
  2. Bank of India Overnight Fund
  3. Mirae Asset Overnight Fund  
  4. Axis Overnight Fund  
  5. Edelweiss Arbitrage Fund     
  6. Axis Arbitrage Fund
  7. Tata Arbitrage Fund   
  8. Nippon India Arbitrage Fund             
  9. Aditya Birla Sun Life Arbitrage Fund 
  10. Kotak Equity Arbitrage Fund

Advantages of Low-Risk Mutual Funds

  1. Principal Preservation: Protective or stable mutual funds tend to invest in low-risk assets in order to preserve principal investments; hence, people also have a sense of safety guarantee. Such stable investment specifically safeguards the monetary eventualities that probably guard against unrestricted losses even during market downturns.
  2. Steady Income: These funds generally put the money in fixed and stable asset-generating entities like government bonds or blue-chip stocks. Consequently, they present shareholders or bondholders with a steady stream of dividends or interest payments, which in turn create a stable source of income regularly.
  3. Diversification: By swimming investors' money and diffusing it among the different assets, low-risk mutual funds possess built-in diversification already in place. This spread among different investments results in decreasing the share of the portfolio due to unfavorable events attributable to any asset alone.
  4. Lower Volatility: In this regard, the best low risk mutual funds are more stable since their prices usually move only within a relatively narrow range when compared to higher-risk stocks, which manifest their greatest volatility. This more veined ride can cut off investors from insecure, impulsive decisions based on changeable markets, which left them to adopt the intelligent and well-calculated investment approach.Also Read about Small Cap Mutual Funds
  5. Accessibility: Low-risk mutual funds that are accessible to investors are mostly those who are new in the world of investing and also such people with a conservative risk tolerance. Investment groups with low minimum investment and full management services allow participants to enter into the domain of investments without huge trouble.
  6. Cost-Efficiency: Most low-cost mutual funds have competitive expense ratios and thus are an advantage for the investors due to which they can invest at a relatively lower cost. Also, their low-touch strategy helps the investors stay guard against cost overruns and trading costs; in consequence, better cost-effectiveness is achieved.

How do Low Risk Mutual Funds Work?

Low risk high-return MFs in India help people grow wealth steadily. It is a place where one can grow their wealth in a sure and secure way. Here’s a brief overview of how they operate.

  1. Diversification: These instruments fund the investments that are diversified between savings to treasury bonds and money market instruments in a way that the risk from market insecurity is reduced.
  2. Professional Management: Experienced fund managers use their knowledge inadvertently to improve earnings and reduce risks in the end.
  3. Risk Mitigation: For example, the risk-averse traditional products aim at building up and preserving portfolios of solid and safe instruments, and in this regard, they have restrictions on including volatile assets in their products.
  4. Liquidity: Such funds are quite convenient to buy and sell, and you can cash them in at any time. This course is divided into six modules, each with its own learning objectives and resources.Click Here to know more about Liquid Mutual Funds 
  5. Returns: Those with commendably low draws and high returns in mutual funds have divided dividends along with a capital appreciation that moderate investors prefer.

Taxability on Low-Risk Mutual Funds

Taxation levels on debt funds investments depend on the length of the holding period. Here’s what you need to know.

  • If an investor who is invested in a debt fund sells those investments within 3 years will attract the short-term capital gains tax as per one's individual tax slab rate.
  • If you hold your debt unit for more than 3 years and then make an exit, you will be charged a flat rate of 20%, which is relatively lower as compared to other income categories, which charge at a progressive rate. However, you can benefit from indexation to lower your tax liability once you take inflation into consideration.
  • The income tax law in India classifies dividends on mutual funds investments or stocks as applicable in your slab beginning April 1, 2020. In case of any single mutual fund or stock you hold, and the dividend amount is in excess of Rs 5000, a 10% TDS (tax deducted at source) applies, i.e., '10% of the dividend amount can be taxed and directly deducted from the total amount.

The Bottom Line

Mutual funds come in varied forms with comparatively lower risk for investors. So, it's crucial to remember that no investment can ensure complete safety from risk. Investors should be aware of risk tolerance and educate themselves on the various elements that can affect the risk profile of a particular mutual fund. By doing this, investors may use mutual funds to potentially reach their investing goals and make well-informed decisions without having to risk too much of their hard-earned money.


Team Sharekhan
by Team Sharekhan

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