Low Risk Mutual Funds

Benefits of Low-Risk Mutual Funds

• Capital Preservation

  The primary goal is to protect the invested principal amount.

• Steady Income

  These funds often provide regular, albeit modest, income through interest or dividends.

• Lower Volatility

  They exhibit less fluctuation in value, making them suitable for conservative investors.

• Liquidity

  Many low-risk mutual funds offer high liquidity, allowing investors to access their money with minimal delay.

Limitations of investing in low risk mutual funds

• Lower Returns

  Low-risk mutual funds generally offer lower returns compared to higher-risk investments such as equities or high-yield bonds. This conservative approach aims to preserve capital and provide stability, but it often means that the returns are modest. Investors looking for significant growth may find these returns insufficient to meet their long-term financial goals or to outpace inflation over time.

• Inflation Risk

  One significant limitation of low-risk mutual funds is their vulnerability to inflation risk. The returns generated by these funds may not always outpace inflation, especially in a high-inflation environment. This can erode the purchasing power of the invested capital, making it challenging for investors to maintain their standard of living or achieve their financial objectives.

• Interest Rate Sensitivity

  Low-risk mutual funds, particularly those investing in bonds, are sensitive to changes in interest rates. When interest rates rise, the value of existing bonds typically falls, leading to a decline in the fund's value. This interest rate risk can negatively impact the fund's performance, especially during periods of rising rates, causing potential losses for investors.

• Credit Risk

  Although considered low-risk, these funds are not entirely free from credit risk. They may invest in corporate bonds or other non-government securities, which carry the risk of issuer default. If a bond issuer fails to meet its obligations, the value of the fund can decline, resulting in potential losses for investors, even in a low-risk fund.

• Limited Capital Appreciation

  Low-risk mutual funds focus primarily on income and capital preservation rather than significant capital appreciation. This conservative investment strategy limits the potential for substantial growth, making these funds less suitable for investors seeking higher returns over the long term. The limited capital appreciation may not suffice for achieving aggressive financial goals.

• Expense Ratios

  Even though low-risk mutual funds tend to have lower expense ratios compared to more actively managed funds, these fees can still reduce the overall returns. Management and administrative costs, though modest, can eat into the income generated by the fund, particularly in a low-yield environment, thereby diminishing the net returns available to investors.

How to Start Investing in Low Risk Mutual Funds with INDmoney

Now that you have understood what Low Risk Mutual Funds are, you need to know how easily you can start your investment with INDmoney. Just follow these simple steps given below, to start your mutual fund investment journey with us.

• Step 1

  Download the INDmoney app and create your free investment account by completing your KYC (Know Your Customer).

• Step 2

  Once your free investment account is ready, you can either search for a Low Risk Mutual Fund or go to the mutual fund section and tap on Fund of Funds from Discover All Categories.

• Step 3

  Choose a Low Risk Mutual Fund by looking at aspects like past returns, volatility, downside capture ratio, AUM, expense ratios, and underlying stocks and sectors.

• Step 4

  You can choose to set up a SIP in a Low Risk Mutual Fund or even invest as a lump sum. Once you are on the individual Low Risk Mutual Fund page, click from the bottom “One-time” for lump sum investment or “SIP” for a systematic investment plan.

• Step 5

  Choose the amount that you want to invest as SIP or Lump Sum.

• Step 6

  Set up payments. If you choose to set up SIP in a Low Risk Mutual Fund, you can do a free automatic pay set up via bank mandate or UPI. If you choose to invest in lump sum (one-time) then you can pay via UPI, net banking, NEFT, or RTGS.