Best Low-Risk Mutual Funds To Invest

Tanushree Jaiswal Tanushree Jaiswal

Last Updated: 25th June 2024 - 02:34 pm

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Are you looking for a secure investment option that can help you grow your wealth steadily over time without exposing your hard-earned money to excessive market volatility? Low-risk mutual funds may be just what you need! These stable-return mutual funds aim to preserve your capital while still providing modest growth, making them an attractive choice for conservative investors.

What Is A Low-Risk Mutual Fund?

A low-risk mutual fund is an investment vehicle that prioritises capital preservation and stable returns over aggressive growth. These funds typically invest in a diversified mix of low-volatility securities, such as high-quality bonds, government securities, and blue-chip stocks. By focusing on defensive investment choices, low-risk mutual funds aim to minimise the impact of market fluctuations on your portfolio, providing a more predictable and reliable investment experience.

Top 10 Low-Risk Mutual Funds 

Here's a list of mutual funds with low risk:

Note: Data and NAV as of June 14, 2024

Fund Name (Direct Plan) Category Risk 1Y Returns (%) Fund Size (in ₹ Cr) NAV (₹)
Invesco India Arbitrage Fund Hybrid Low 8.7 16,105 31.9659
Tata Arbitrage Fund Hybrid Low 8.65 11,829 13.98
Bank of India Overnight Fund Debt Low 6.89 71 1231.1
Bandhan Arbitrage Fund Hybrid Low 8.57 6,203 32.53
Axis Overnight Fund Debt Low 6.84 9,383 1284.37
Mirae Asset Overnight Fund Debt Low 6.84 883 1245.004
Kotak Equity Arbitrage Fund Hybrid Low 8.85 46,308 37.09
Edelweiss Arbitrage Fund Hybrid Low 8.75 11,769 19.27
Axis Arbitrage Fund Hybrid Low 8.54 4,939 18.82
Nippon India Arbitrage Fund Hybrid Low 8.54 15,158 26.61

 

Overview: 10 Best Low-Risk Mutual Funds To Invest In India 2024

Let’s take a closer look at low-risk mutual fund schemes.

Invesco India Arbitrage Fund - Direct Plan
●    Assets: ₹16,105 Cr
●    Exit Load: 0.50% (15 days)
●    Minimum Investment: ₹1,000
●    Minimum Withdrawal: ₹1,000
●    Minimum SIP Investment: ₹500
●    Investment Strategy: The fund aims to generate income by taking advantage of arbitrage opportunities arising from a pricing mismatch between the cash market and the derivatives market.

Tata Arbitrage Fund - Direct Plan
●    Assets: ₹11,829 Cr
●    Exit Load: 0.25% (30 days)
●    Minimum Investment: ₹5,000
●    Minimum Withdrawal: ₹500
●    Minimum SIP Investment: ₹150
●    Investment Strategy: The Scheme seeks to generate reasonable returns by investing predominantly in arbitrage opportunities in the cash and derivatives segments of the equity markets and by investing the balance in debt and money market instruments.

Bank of India Overnight Fund - Direct Plan
●    Assets: ₹71 Cr
●    Exit Load: Nil
●    Minimum Investment: ₹5,000
●    Minimum Withdrawal: ₹1,000
●    Minimum SIP Investment: Not available
●    Investment Strategy: The scheme seeks to generate income commensurate with low risk and high liquidity by investing in overnight securities having a residual maturity of 1 business day.

Bandhan Arbitrage Fund - Direct Plan
●    Assets: ₹6,203 Cr
●    Exit Load: 0.25% (15 days)
●    Minimum Investment: ₹100
●    Minimum Withdrawal: ₹500
●    Minimum SIP Investment: ₹100
●    Investment Strategy: The scheme aims to generate capital appreciation and income by predominantly investing in arbitrage opportunities in the equity markets' cash and derivative segments, the arbitrage opportunities available within the derivative segment, and the balance in debt and money market instruments.

Axis Overnight Fund
●    Assets: ₹9,383 Cr
●    Exit Load: Nil
●    Minimum Investment: ₹500
●    Minimum Withdrawal: Not available
●    Minimum SIP Investment: Not available
●    Investment Strategy: The Scheme seeks to provide reasonable returns commensurate with very low interest rate risk and a high level of liquidity through investments made primarily in overnight securities with a maturity/residual maturity of 1 business day.

Mirae Asset Overnight Fund - Direct Plan
●    Assets: ₹883 Cr
●    Exit Load: Nil
●    Minimum Investment: ₹5,000
●    Minimum Withdrawal: Not available
●    Minimum SIP Investment: ₹1,000
●    Investment Strategy: The scheme seeks to generate returns commensurate with low risk and provide a high level of liquidity through investments made primarily in overnight securities with a maturity of 1 business day.

Kotak Equity Arbitrage Fund - Direct Plan
●    Assets: ₹46,308 Cr
●    Exit Load: 0.25% (30 days)
●    Minimum Investment: ₹100
●    Minimum Withdrawal: ₹1,000
●    Minimum SIP Investment: ₹100
●    Investment Strategy: The scheme aims to generate income through arbitrage opportunities emerging out of pricing anomalies between the spot & futures market and by deploying surplus cash in fixed-income instruments.

Edelweiss Arbitrage Fund - Direct Plan
●    Assets: ₹11,769 Cr
●    Exit Load: 0.10% (30 days)
●    Minimum Investment: ₹100
●    Minimum Withdrawal: ₹1
●    Minimum SIP Investment: ₹100
●    Investment Strategy: The Scheme seeks to generate income by predominantly investing in arbitrage opportunities in the equity markets' cash and derivative segments, the arbitrage opportunities available within the derivative segment, and the balance in debt and money market instruments.

Axis Arbitrage Fund - Direct Plan
●    Assets: ₹4,939 Cr
●    Exit Load: 0.25% (15 days)
●    Minimum Investment: ₹500
●    Minimum Withdrawal: ₹1,000
●    Minimum SIP Investment: ₹100
●    Investment Strategy: The scheme aims to generate income through low-volatility absolute return strategies that take advantage of opportunities in the cash and derivative segments of the equity markets, including the arbitrage opportunities available within the derivative segment. The scheme uses other derivative-based strategies and invests the balance in debt and money market instruments.

Nippon India Arbitrage Fund - Direct Plan
●    Assets: ₹15,158 Cr
●    Exit Load: 0.25% (30 days)
●    Minimum Investment: ₹5,000
●    Minimum Withdrawal: ₹100
●    Minimum SIP Investment: ₹100
●    Investment Strategy: The scheme seeks to generate income by taking advantage of the arbitrage opportunities that potentially exist between cash and derivative markets and within the derivative segment, along with investments in debt securities and money market instruments.

Suitability of Arbitrage Funds and Overnight Funds: Arbitrage funds invest in equity shares and derivatives, earning returns through the price differential between a stock and its futures. They can provide better returns than bank accounts and are suitable for parking money for three months to a year. However, liquid funds are a better alternative for most investors in this time frame. 

Arbitrage funds may appeal to those in the highest tax bracket due to preferential tax treatment. The risk of loss is low, but returns and the safety of capital are not guaranteed. These funds deliver steady but low returns and are unsuitable for long-term wealth creation.

Overnight funds invest in bonds with a maturity of just one day. They are suitable for earning a little extra on idle money in the bank, such as emergency funds or surplus money not needed for a few days up to a year. The risk of loss is negligible, but returns and safety of capital are not guaranteed. These funds deliver marginally higher returns than bank accounts but are unsuitable for long-term wealth creation.

Features & Benefits Of Best Low-Risk Mutual Funds

● Capital Preservation: Low-risk mutual funds prioritise the safety of your principal investment, making them a reliable choice for conservative investors.

● Stable Returns: These funds aim to provide consistent and predictable returns, minimising the impact of market volatility on your portfolio.

● Diversification: Low-risk mutual funds invest in a diverse mix of securities, spreading risk across different instruments and sectors.

● Professional Management: Fund managers actively monitor and adjust portfolios to optimise returns while managing risk.

● Liquidity: Most low-risk mutual funds offer high liquidity, allowing you to redeem your investments easily when needed.

● Lower Expense Ratios: These funds often have lower expense ratios than more aggressive funds, helping you retain more returns.

● Ideal for Short-Term Goals: Low-risk mutual funds are well-suited for investors with short-term financial goals or those nearing retirement.

● Regular Income: Some low-risk funds focus on generating regular income through interest payments or dividends.

● Reduced Stress: These funds can provide a less stressful investment experience by minimising market fluctuations.

● Accessible to All Investors: Low-risk mutual funds are suitable for novice and experienced investors seeking a conservative investment approach.

Who Should Invest In A Low-Risk Mutual Fund?

Low-risk mutual funds are an excellent choice for:

● Conservative Investors: If you have a low-risk tolerance and prioritise capital preservation, these funds can help you achieve your financial goals with minimal volatility.

● Retirees or Near-Retirees: Protecting your nest egg becomes crucial as you approach retirement. Low-risk mutual funds can help you preserve your wealth while still providing some growth.

● Short-Term Goals: If you have short-term financial goals, such as saving for a down payment or a child's education, low-risk funds can help you grow your money steadily without exposing it to excessive risk.

● First-Time Investors: If you're new to investing, low-risk mutual funds can provide a stable introduction to the world of mutual funds without overwhelming you with complex investment strategies.

● Risk-Averse Investors: Some investors simply prefer a more conservative approach to investing. Low-risk mutual funds cater to this preference, offering a balanced risk-reward profile.

Factors To Consider When Choosing A Low-Risk Mutual Fund

● Fund Objective: Ensure the fund's investment objective aligns with your financial goals and risk tolerance.

● Historical Performance: Evaluate the fund's past performance over different market cycles to gauge its consistency and resilience.

● Expense Ratio: Lower expense ratios mean you keep more of your returns. Compare expense ratios across similar funds to find the most cost-effective option.

● Fund Manager's Track Record: Research the fund manager's experience, expertise, and track record in managing low-risk funds.

● Asset Allocation: Look for funds that maintain a diversified portfolio of low-risk securities to minimise concentration risk.

● Credit Quality: Ensure the fund invests in high-quality, investment-grade securities to reduce default risk.

● Fund Size: Consider the fund's assets under management (AUM) to ensure it has sufficient liquidity and resources to manage your investments effectively.

● Dividend Policy: If regular income is a priority, look for funds with a consistent dividend distribution history.

● Reputation of the Fund House: Invest with reputable fund houses known for their integrity, transparency, and customer service.

● Taxation: Understand the tax implications of investing in low-risk mutual funds and factor them into your investment decision.

Conclusion

Low-risk mutual funds offer a compelling investment opportunity for those seeking to grow their wealth steadily without taking on excessive risk. By prioritising capital preservation, stable returns, and diversification, these funds can help you navigate market uncertainties and achieve your financial goals with greater peace of mind. When selecting the best low-risk mutual fund for your portfolio, consider factors such as the fund's objective, historical performance, expense ratio, and the fund manager's expertise. By doing your due diligence and aligning your investments with your risk tolerance and financial objectives, you can harness the power of low-risk mutual funds to build a more secure financial future.
 

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Disclaimer: Investment/Trading in securities Market is subject to market risk, past performance is not a guarantee of future performance. The risk of loss in trading and investment in Securities markets including Equites and Derivatives can be substantial.

Frequently Asked Questions

What Types Of Securities Do Low-Risk Mutual Funds Typically Invest In? 

How Do Expense Ratios And Fees Impact The Performance Of Low-Risk Mutual Funds? 

Are There Any Tax Implications Associated With Investing In Low-Risk Mutual Funds? 

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