I am a beginner and want to know the best funds to invest to get the best returns. But dont want to take too much risk.Asked
As an investor, it is important to understand that risks and returns are directly proportional to each other. The higher the risk, the high are the returns. In mutual funds segment, equity funds are the funds which provide the maximum returns but they also come with the complimentary higher risk. The rationale behind the volatility of these funds is that the stocks’ prices are also volatile.
Mutual funds can be categorized into three categories on the basis of the risks and returns:
High Risk Funds: These funds are the equity oriented funds with high return expectations. The expected rate of return for these funds is above 12 %. Many funds are providing as high as 20 % returns and some even to the extent of 30 %.
Low Risk Funds: These funds are the debt oriented funds with low return expectations of around 6-9 %.
Medium Risk Funds: The funds which provide medium level of risk are the combination of equity and debt funds can be called hybrid funds. They have expected return rate in the range 9- 12 %.
Which funds should I invest to get better returns at low risk?
As a beginner in the mutual funds industry and risk averse, we would like to advise you in equity oriented hybrid funds. These funds are also called balanced funds. These portfolios of these funds comprise of at least 65 % of the equity funds and the rest of the funds are invested in the debt funds to minimize the risk. The equity component of the portfolio gives the investor the opportunity for growth whereas the debt component balances the risk of the investment.
Large caps, mid caps and small caps funds perform differently over a period of time. Hence, investing in various categories of funds also helps an investor to maximize returns.