Low Risk Mutual Funds - A Guide To Invest In Low Risk Mutual Funds

A low-risk mutual fund , as the name suggests, is a type of fund that has a low-risk quotient. In other words, the risk associated with such a fund is low. A low-risk mutual fund invests primarily into debt securities including government bonds, treasury bills, corporate bonds, etc. These carry lower risk as compared to stocks.Note that generally debt mutual funds fall in the category of low-risk funds. This is because a sizeable portion of a debt fund’s asset is invested in the above-mentioned securities.

While a low-risk mutual fund helps you to diversify your investment, more importantly, it cushions your portfolio from taking a dip in case the market turns turtle. In other words, it protects your accumulated corpus from eroding due to market fluctuations.Also, investing in low-risk mutual funds can help you accumulate a corpus for short-term goals such as a vacation, buying a car or making a down payment for purchasing a house. Additionally, a low-risk mutual fund also aids you in building an emergency corpus. For instance, liquid funds which invest in securities with a maturity period of 91 days can help you park money for a contingency.

No. Low-risk funds are not completely devoid of risk. However, the quantum of risk is low as compared to an all-equity fund.They primarily face two types of risk – credit and interest. While in the former, a decline the issuer’s credit profile can lead to a default, in the latter there’s a decline in value due to changes in interest rate. Hence, investing in low-risk mutual funds is not completely risk-free. To sum up When you invest in a low-risk mutual fund, it’s crucial to check out the fund fundamentals and most importantly the type of securities it holds. For security purposes, it’s essential to opt for a fund that invests in highly-rated securities.Also, instead of committing a lump sum into low-risk funds, it’s better is to adopt the systematic investment plan (SIP) route, which invests a pre-defined amount at a fixed interval every month. It brings discipline into your investments and helps you build wealth in a sustained manner.

The information contained herein is generic in nature and is meant for educational purposes only. Nothing here is to be construed as an investment or financial or taxation advice nor to be considered as an invitation or solicitation or advertisement for any financial product. Readers are advised to exercise discretion and should seek independent professional advice prior to making any investment decision in relation to any financial product. Aditya Birla Capital Group is not liable for any decision arising out of the use of this information.