Best High Risk Mutual Funds

These are the salient features of the best high risk mutual funds – 

Type: There can be various categories of high-risk MFs – balanced advantage schemes, credit risk fund schemes, equity hybrid fund schemes, and the likes. 

Asset allocation: These High risk funds predominantly invest in stocks or bonds of developing or growing companies. The specific asset allocation depends on the type of high-risk mutual fund. 

Risk-reward ratio: High-risk mutual funds involve significant volatility, as the classification suggests. However, the best high risk mutual funds 2022 also offer sizeable returns.

The treatment is carried out as per the concerned fund’s asset allocation. 

Long-term Capital Gains Tax: A 10% tax rate is applicable on gains exceeding Rs.1 lakh if the fund units are sold after one year. It only applies to schemes investing a more significant share in equity and equity-related instruments. In case a high-risk fund invests predominantly in debt securities, it’ll be treated as a debt fund for taxation. Thereby, gains realised after 3 years will be liable for a 20% tax + indexation benefits. 

Short-term Capital Gains Tax: Capital gains on equity-oriented high-risk funds held for less than a year attract taxation @15% + cess, notwithstanding the amount. Conversely, gains realised from debt-based funds within 36 months of investment are taxed per an investor’s income slab. For example, suppose an investor belongs to the 15% tax bracket. Herein, any gains from a debt high risk fund are added to their income and taxed @15%.

TDS: Dividend pay-outs of over Rs.5000 from equity-based high-risk mutual funds attract a 10% TDS. Tax deducted at source does not apply to debt-based funds. 

High-risk funds are most suitable for investors with in-depth knowledge about the market and a fair understanding of macroeconomic trends. In addition, investors who have a strong risk appetite and do not mind exposing their portfolio to volatility to generate higher earnings can consider the best high risk mutual funds. 

Investors shall also note that high-risk mutual funds usually offer more significant returns over a long time horizon, extending up to 10 years. That’s because the underlying bonds and stocks are mostly of companies in their growth phase. Usually, investors with an aggressive but patient investment approach may find this type of mutual fund suitable.  

Nonetheless, investors must weigh in a few things before parking their money in the best high-risk mutual funds. 

Investment goal: Investors must identify their long-term financial goals and set realistic benchmark before selecting a fund. 

Risk profile: The capacity to take risk differs among investors. One should consider the scale of losses one can digest before investing in high-risk mutual funds. Accordingly, investors should decide the investment quantum. 

Fund’s performance: Gaining an insight into a fund’s past performance often proves effective in decision-making. Investors can check a fund’s historical returns and compare them with other peer options for better understanding.

Expense ratio: Usually, the expense ratio varies among Asset Management Companies. Since the expense ratio impacts returns, investors must make it a point to find out about it before investing. 

Direct and regular plan: The best high risk mutual funds are available as direct and regular plans. Fund houses offer the former without the involvement of intermediaries and at a lower expense ratio. Conversely, to invest in regular plans, investors have to approach third-party agents like brokers, distributors, etc. Thus, regular plans involve a higher NAV and report lower NAVs. 

These are among the top benefits of investing in the best high risk mutual funds 2022 –

Higher returns: The best high risk mutual funds are adept at generating comparatively higher returns than most other investment options. Debt-based funds invest in low-rated bonds, which can generate significant returns. Similarly, equity-based funds allocate their assets to stocks of growing companies, improving the chances of generating greater returns than large-cap funds. 

Long-term capital appreciation: High risk mutual fund performs best over 5-7 years, which is why they are considered suitable for long-term financial goals. Also, these funds are adept at generating inflation-adjusted returns. 

Tax benefits: Investors belonging to higher income tax slabs can enjoy more tax-efficient returns compared to bank fixed deposits. 

Opportunity to beat benchmarks: In a positive market cycle, these funds can outperform benchmarks.

Investment modes: Investors can invest in the top high risk mutual funds in two ways – Systematic Investment Plan or lump sum. In SIP, investors have the flexibility to invest a fixed amount in the fund scheme as per their financial standing. In the lump-sum investment method, individuals need to invest a specific amount at once. The minimum investment sum is Rs.500, mostly in the case of SIP. It may be Rs.1000 in the case of a lump sum.