Mutual Fund Investments are one of the popular ways to build wealth over a long period. Well planned investments in mutual funds let the investors to achieve their short term & long term financial goals on the required time. However, as risk is an inherent part of every investment, different mutual fund schemes carry different levels of risk. Investors should always look into investing in those schemes which are suitable as per their risk appetite & align with their financial goals. With a large number of schemes available in the markets, the investors have the option to invest according to their risk tolerance & financial needs.

Safety of the fund depends upon a number of factors including the asset class, volatility, past performances, asset quality, risk factors specific to the investments, their maturities(in case of debt funds), grade ratings, & many more.

 

Following types of investment may be suitable for investors with different risk appetites:

1. Low-Risk MF Investments – The investors who want to avoid taking any risk in their portfolio can look into investing in top funds of the debt fund categories such as Corporate Bond Funds and Banking & PSU Funds.

The corporate bond funds invest at least 80% of its assets in Top quality papers of the corporates such as in AA+ & above graded bonds (these funds would invest at least 65% in AA+ & ABOVE rated papers of the corporates & up to 15% in T-bills, G-securities from May 18,2020 for 3 months as per SEBI’s reclassification exercise) as per the mandatory requirements of SEBI. This makes it a low-risk investment and more safer fund than the others in the debt category for the investments of 3-5 years.

Banking & PSU Funds invest a major portion of their assets in the debt instruments, bonds of the banks, public sector entities & financial institutions. This makes it one of the safest investment options for investors for getting stable returns along with taking low risks.

Investors looking into parking their savings & emergency funds for a very short period can invest in liquid funds & overnight funds. These are the safest & highly-liquid funds in the debt category due to their lending to high-quality borrowers and for short maturities.

 

2. Moderately Low-Risk MF Investments: The investors with a moderately low-risk appetite can look into investing in Arbitrage funds which predominately invest in arbitrage & equity derivative opportunities and the rest in money market securities. These funds carry low risk and are one of the safest in the hybrid category. Also they have been a safe haven for investors due to their stable returns.

And the investors who want to invest conservative exposures in equities can invest in conservative hybrid funds, which along with ensuring safety through a large exposure in debt, also provides scope for capital gains through exposures in equity opportunities.

 

Or they can look into investing a small proportion of their portfolio in Top Large-Cap funds in Equity category and a major portion in the high-quality debt funds.

3. Moderately-High risk Investments: The investors having moderately high-risk appetite have an excellent option for achieving diversification as well as ensuring low volatility, opportunities of higher returns & more stability in the Balanced Advantage Funds of the hybrid category. Also known as Dynamic Asset Allocation Funds, these funds have the advantage to dynamically allocate their assets among equity, debt & derivative positions according to the market conditions, which makes it safer than investing in pure equity funds. A Top Fund in the balanced advantage category which has outperformed the returns of the benchmark as well as the category average returns over the long period is ICICI balanced advantage fund.

Investors should choose their investments on the basis of their risk tolerance so as to ensure the level of safety they need in their portfolio.