Best Low Risk Mutual Funds

Here are some features of the best low risk mutual funds – 

Asset allocation: For low-risk mutual funds, a significant amount of assets are allocated to debt instruments. 

Risk-reward ratio: The top low-risk mutual funds minimise or even eliminate the risk of investors. Fund managers place such assets in low volatile segments, where the likelihood of earning a hefty return is also low.

Long-term Capital Gains Tax: If you hold your stake in the best low risk mutual funds for more than 3 years, returns are taxed at a flat rate of 20% with indexation benefits.

Short-term Capital Gains Tax: On the other hand, if one decides to sell the assets before the 3-year mark, returns would be added to his/her yearly income and taxed as per the applicable slab rate.

TDS: Tax deducted at source or TDS doesn’t apply to low risk mutual funds.

The best low risk mutual funds are suitable for new investors who lack the required knowledge to navigate the various other fund options safely. Predominantly, such investors have a limited risk appetite. Such a debt instrument is perfect if an individual is looking for the same level of security as an FD but also desires higher returns. These funds may also be ideal for those who want to preserve high liquidity in their investment portfolio.

Study some of the important considerations that an investor needs to undertake before low risk mutual fund investment – 

Time horizon: Individuals with an investment horizon of less than a year can consider investing in these options. Such low risk funds can help one achieve his/her short-term financial objectives.

Investment goal: Investing in the best low risk mutual funds requires an extensive evaluation of one’s financial goals. It helps one determine the quantum of investment they need to make and the time period for which they want to hold their stakes. 

Risk appetite: Even though these funds offer high liquidity, they remain unaffected by interest rate risk and credit risk, unlike liquid mutual funds. Nevertheless, inflation risk can reduce projected returns, which is why investors must be wary of the same. To scale investments, it’s necessary to determine the level of losses or reduction in gains one can digest shall a scheme underperform. 

Past performance: Checking how such a low-risk fund has performed in the past three years against a benchmark index is crucial for guaranteed returns. Also, investors must figure out the expense ratio or the management cost of such funds before investing.

Credit rating check: Practised investors must go through the low-risk fund fact sheet carefully to know more about the duration and the credit rating of bonds in this portfolio.

The best low-risk mutual funds in 2025 offer the following benefits – 

Fulfilment of short-term goals: As stated previously, these low-risk funds can be an ideal vehicle to achieve short-term financial objectives. Any goal that an individual wants to achieve within the next year can be fulfilled with these investment options.

Minimal risk: One of the biggest advantages of these funds is that they face minimal risk. Credit risk is eliminated for these options. Additionally, interest rate fluctuations do not hamper returns from these instruments. In most cases, low-risk funds also manage to offset the effects of inflation. However, a minimal risk from this factor remains.   

Source of regular income: Besides securing the capital, the best low-risk mutual funds can act as a supplementary source of income as well. 

Tax savings for certain income slabs: Individuals falling under the higher slab rates can save a significant amount in taxes by investing in these funds instead of FD. Such tax savings is more apparent in terms of long-term capital gains, which offer indexation benefits.

Higher returns when compared to fixed deposits: Bank fixed deposits are a preferred form of investment for individuals with minimal risk appetite. However, returns from fixed deposits tend to be restricted severely as well. Low risk mutual funds can offer the same level of security for the underlying capital while also offering increased returns. 

Enhanced liquidity: Investors opting for low liquidity funds often face a severe cash crunch during financial emergencies. These low-risk funds ensure that liquidity is never a problem. Investors can quickly access their share to curtail emergencies.

Considering all of these aspects is crucial before investing in such a fund. Doing so will maximise ROI and help achieve investment goals.

It is not possible for any investor to start investing in mutual funds without having completed the KYC process. Under the Prevention of Money Laundering Act (PMLA), Know Your Customer (KYC) norms have been mandated to track the legality of funds used in an investment. KYC is a one-time process which every first-time mutual fund investor needs to follow, to be able to invest in a mutual fund. KYC process on Groww can be completed in 2-3 days. KYC can be completed online with the help of E-KYC or electronic KYC. E-KYC Aadhar (based on OTP) : Investor can use online KYC facility using just the aadhar card number and PAN number, by visiting the website and following the easy process. After entering relevant details like aadhar and PAN number, investor will receive an OTP and KYC will be completed instantly. However, one can invest only up to ₹50,000 per fund house per year under this method.