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Best Low Risk Mutual Funds

As the name suggests, low-risk mutual funds are those investment options that carry minimal risk and a stable return assurance. Investments are primarily restricted to real estate, government bonds, etc. These funds are always a step ahead of inflation. To do so, they invest a major chunk of their total assets in debt instruments. Choosing the best low risk mutual funds can help stabilise the risk-reward ratio in an investor’s portfolio.

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Top 10 Low Risk Mutual Funds

Fund NameCategoryRisk1Y ReturnsRatingFund Size(in Cr)
Tata Arbitrage FundHybridLow4.1%5₹9,887
Edelweiss Arbitrage FundHybridLow4.4%5₹7,134
Axis Arbitrage FundHybridLow4.7%5₹5,868
HSBC Overnight FundDebtLow3.5%5₹642
Mahindra Manulife Arbitrage Yojana FundHybridLow3.4%5₹24
Mirae Asset Overnight FundDebtLow3.5%5₹492
Bank of India Overnight FundDebtLow3.6%5₹47
Invesco India Arbitrage FundHybridLow4.5%4₹1,071
Nippon India Arbitrage FundHybridLow4.3%4₹11,069
Kotak Equity Arbitrage FundHybridLow4.4%4₹26,010
View All

Features of Low Risk Mutual Fund

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.

Taxability

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. 

Who Are These Funds Suited For?

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.

Major Advantages

The best low-risk mutual funds in 2022 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.

Let's have a closer look

Now let us jump and check about these top 10 mutual fund schemes.

Tata Arbitrage Fund Direct Growth

Fund Performance: The Tata Arbitrage Fund belongs to the Hybrid category of Tata Mutual Funds.

Minimum Investment Amount: The minimum amount required to invest in Tata Arbitrage Fund via lump sum is ₹5,000 and via SIP is ₹150.

Min Investment Amt₹5,000
AUM₹9,887Cr
1Y Returns4.1%

Edelweiss Arbitrage Fund Direct Growth

Fund Performance: The Edelweiss Arbitrage Fund has given 5.12% annualized returns in the past three years and 5.82% in the last 5 years. The Edelweiss Arbitrage Fund belongs to the Hybrid category of Edelweiss Mutual Funds.

Minimum Investment Amount: The minimum amount required to invest in Edelweiss Arbitrage Fund via lump sum is ₹5,000 and via SIP is ₹500.

Min Investment Amt₹5,000
AUM₹7,134Cr
1Y Returns4.4%

Axis Arbitrage Fund Direct Growth

Fund Performance: The Axis Arbitrage Fund has given 5.01% annualized returns in the past three years and 5.74% in the last 5 years. The Axis Arbitrage Fund belongs to the Hybrid category of Axis Mutual Funds.

Minimum Investment Amount: The minimum amount required to invest in Axis Arbitrage Fund via lump sum is ₹5,000 and via SIP is ₹1,000.

Min Investment Amt₹5,000
AUM₹5,868Cr
1Y Returns4.7%

HSBC Overnight Fund Direct Growth

Fund Performance: The HSBC Overnight Fund belongs to the Debt category of HSBC Mutual Funds.

Minimum Investment Amount: The minimum amount required to invest in HSBC Overnight Fund via lump sum is ₹5,000 and via SIP is ₹500.

Min Investment Amt₹5,000
AUM₹642Cr
1Y Returns3.5%

Mahindra Manulife Arbitrage Yojana Direct Growth

Fund Performance: The Mahindra Manulife Arbitrage Yojana Fund belongs to the Hybrid category of Mahindra Mutual Funds.

Minimum Investment Amount: The minimum amount required to invest in Mahindra Manulife Arbitrage Yojana Fund via lump sum is ₹1,000 and via SIP is ₹500.

Min Investment Amt₹1,000
AUM₹24Cr
1Y Returns3.4%

Mirae Asset Overnight Fund Direct Growth

Fund Performance: The Mirae Asset Overnight Fund belongs to the Debt category of Mirae Asset Mutual Funds.

Minimum Investment Amount: The minimum amount required to invest in Mirae Asset Overnight Fund via lump sum is ₹5,000 and via SIP is ₹1,000.

Min Investment Amt₹5,000
AUM₹492Cr
1Y Returns3.5%

Bank of India Overnight Fund Direct Growth

Fund Performance: The Bank of India Overnight Fund belongs to the Debt category of BOI AXA Mutual Funds.

Minimum Investment Amount:

Min Investment Amt₹5,000
AUM₹47Cr
1Y Returns3.6%

Invesco India Arbitrage Fund Direct Growth

Fund Performance: The Invesco India Arbitrage Fund has given 5% annualized returns in the past three years and 5.59% in the last 5 years. The Invesco India Arbitrage Fund belongs to the Hybrid category of Invesco Mutual Funds.

Minimum Investment Amount: The minimum amount required to invest in Invesco India Arbitrage Fund via lump sum is ₹1,000 and via SIP is ₹500.

Min Investment Amt₹1,000
AUM₹1,071Cr
1Y Returns4.5%

Nippon India Arbitrage Fund Direct Growth

Fund Performance: The Nippon India Arbitrage Fund has given 4.95% annualized returns in the past three years and 5.81% in the last 5 years. The Nippon India Arbitrage Fund belongs to the Hybrid category of Nippon India Mutual Funds.

Minimum Investment Amount: The minimum amount required to invest in Nippon India Arbitrage Fund via lump sum is ₹5,000 and via SIP is ₹100.

Min Investment Amt₹5,000
AUM₹11,069Cr
1Y Returns4.3%

Kotak Equity Arbitrage Fund Direct Growth

Fund Performance: The Kotak Equity Arbitrage Fund has given 4.94% annualized returns in the past three years and 5.68% in the last 5 years. The Kotak Equity Arbitrage Fund belongs to the Hybrid category of Kotak Mahindra Mutual Funds.

Minimum Investment Amount: The minimum amount required to invest in Kotak Equity Arbitrage Fund via lump sum is ₹5,000 and via SIP is ₹500.

Min Investment Amt₹5,000
AUM₹26,010Cr
1Y Returns4.4%

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