What are Low-risk Funds?

Funds in this category are focused on generating returns keeping the risk level low.

The fund is also invested in high-quality debt securities such as Government Bonds

It’s obvious from the name that the risk is low when you invest in a low-risk mutual fund. So let’s also learn about this category of a mutual fund if you want to make a balance between risk & returns in your portfolio for your short-to-medium-term investment.

Low-risk Mutual Funds

Funds in this category are focused on generating returns keeping the risk level low. Investors, who want to secure their money and earn optimal returns in the short term, generally search for this kind of mutual fund. These funds also serve as ideal monetary reserves for capital appreciation through timely liquid investments. However, return from these categories of Mutual Funds shouldn’t be compared with the return from Equity Funds.

How do Low-risk Funds work?

Having a balanced mix of different asset classes that have generated good returns giving strong downside protection, is one of the ways to generate return keeping the risk level low like a mix of Equity, Debt & Gold.

There are debt funds like liquid funds and Ultra Short Term funds, which are the least risky funds aiming at generating optimal returns for a short duration. Liquid funds invest in securities with a low maturity period, i.e., 3months. These funds provide easy liquidity and are least volatile than the other types of debt instruments. Ultra Short Term funds invest in a combination of debt instruments like commercial papers, certificates of deposits, corporate bonds and treasury bills. Ultra Short Term Fund offers good returns with significantly less market volatility in 6months to 1-year duration.

The fund is also invested in high-quality debt securities such as Government Bonds, Debentures, Real Estate, Money Market funds, etc., which are relatively safer in the short 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.

Features of Low-risk Funds

  • These are Mutual Funds with lower market risk factors involved. Low-risk mutual funds expose their investors to lower risk, therefore, promise returns that are lower but stable over the tenure.
  • A significant portion of total assets is allocated to debt instruments.
  • These funds are highly liquid in a short duration.
  • The investment horizon is relatively low, with a maturity period ranging from 91 days to 1 year.
  • The fund managers choose securities in the less volatile sector than equity schemes based on their historical returns and credit ratings. Generally, the funds are invested into quality instruments having high credit ratings to generate assured returns after critically analyzing different securities.

Who should invest in Low-risk Mutual Funds?

  • Generally conservative or risk-averse investors opt for these funds where the focus is on generating regular income and preserving funds.
  • Investors willing to earn optimal returns higher than bank FDs in a short duration should invest in low-risk mutual funds.
  • New investors who are unfamiliar with how the market functions or senior citizens who want to secure their funds and earn good returns on their idle money in the short term usually look for low-risk mutual funds.
  • Investors who are looking for easy liquidity to meet urgent financial requirements can also go for this investment.
  • Investors looking for a tax-efficient investment scheme other than bank fixed deposits can opt for low-risk mutual funds.


Every investor should focus on portfolio diversification from the beginning, which is an essential strategy. Depending on your investment horizon and risk appetite, a good mix of high-risk and low-risk investments can pay off in the long run. Consult an advisor since they can share expert insight on the crucial aspects of choosing the suitable investment for your financial goals after thorough research.

That’s why Comparte Investment team asks do you have “Nivesh Ki Aadat”.

With this one can say “Mutual Fund Sahi hai”,  so let me do Nivesh