Mutual funds are a lucrative investment option for investors looking for tax-efficient returns that are typically higher than alternatives such as fixed deposits. Although mutual funds are generally considered a reliable investment, there are high-risk and low-risk categories within it as well. Investors with a lower risk tolerance benefit from a strategy that ensures security and optimal gains in the short term. Beginners or senior citizens tend to go for low-risk mutual funds. Meanwhile, more seasoned investors with a higher appetite for risk can afford to risk a little volatility with funds invested primarily in inequities. Read on to know more about the pros and cons of each type and the top mutual funds in either category. 

High-Risk Mutual Funds 

Certain mutual funds can be significantly volatile; this can entail huge returns but there is also the possibility of severe losses during incidents like a market crash. Examples of high-risk mutual funds include small cap or mid-cap equity funds and funds invested in high-yield debt securities with less-than-desirable credit ratings. Firms that have small capitalization or are medium-sized have a lot of scope for growth. However, if the companies fail to perform well or there is a bear market, equity prices can very well plummet. Even funds invested in ‘blue-chip’ stocks, i.e those that are of large and stable companies are naturally exposed to the risks inherent in the equities market. 

Fund houses and asset management companies are responsible for conducting in-depth research in order to calculate the likelihood of good returns before offering high-risk mutual funds to potential investors. Here are 5 top high-risk mutual funds in the Indian market currently:

• PGIM India Midcap Opportunities Fund Growth 
• Kotak Small Cap Fund Growth 
• Nippon India Small Cap Fund Growth 
• ICICI Prudential Smallcap Fund Growth 
• DSP BlackRock Small Cap Fund  Growth 

Low-Risk Mutual Funds 

Low-risk mutual funds promise returns that are lower, but also expose their investors to lower risk. Conservative investors generally opt for these funds, as the focus is more on garnering regular income and preserving funds. An example of a low-risk fund is a fund invested in high-quality debt securities such as bonds, with a shorter term, ensuring regular fixed income. However, such low-risk mutual funds are more vulnerable to inflation-related risks, as well as fluctuations in interest rates. Here are some of the top low-risk mutual funds in the Indian market today:

• JM Liquid Fund Growth 
• PGIM India Insta Cash Fund Growth
•  Principal Cash Management Fund Growth 
• Indiabulls Liquid Fund Growth 
• Essel Liquid Fund Growth

Conclusion:

Portfolio diversification is an important strategy every investor should learn from early on. Including a good mix of high-risk and low-risk investments, depending on your investment temperament, can pay off in the long run. Thorough research and expert insight are important aspects of choosing the right investment for your financial goals.

 

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