Top Low-Risk Mutual Funds in India for 2025
Low risk mutual funds, true to their name, offer minimal risk and a guaranteed stable return. These low risk SIP plans primarily invest in real estate and government bonds to stay ahead of inflation. By focusing on debt instruments, these low risk high return mutual funds can bolster your portfolio’s risk-reward balance. Learning how to select the top low risk high return mutual funds in India can make all the difference in your investment journey. This article will explore a list of top low risk SIP plans, their stock overviews, benefits, and challenges.
10 Best Low Risk Mutual Funds
Here is an educational list of low risk mutual funds and low risk SIP plans. This is meant to be informative and not recommendatory:
| Name | AUM (Rs. in Cr.) | Expense Ratio (%) | CAGR 5Y (%) | Volatality | Tracking Error |
|---|---|---|---|---|---|
| Tata Arbitrage Fund | 12,589.05 | 0.30 | 6.27 | 0.96 | 1.04 |
| Invesco India Arbitrage Fund | 18,251.89 | 0.39 | 6.25 | 1.01 | 1.02 |
| Edelweiss Arbitrage Fund | 12,199.21 | 0.38 | 6.22 | 1.01 | 1.01 |
| Kotak Equity Arbitrage Fund | 54,915.38 | 0.43 | 6.19 | 1.01 | 0.96 |
| Nippon India Arbitrage Fund | 15,418.46 | 0.39 | 6.09 | 0.97 | 1.01 |
| Axis Arbitrage Fund | 5,591.95 | 0.34 | 6.05 | 0.95 | 1.00 |
| Baroda BNP Paribas Arbitrage Fund | 1,375.64 | 0.38 | 6.00 | 1.00 | 1.17 |
| HSBC Arbitrage Fund | 2,447.57 | 0.26 | 6.00 | 1.05 | 1.09 |
| UTI Arbitrage Fund | 6,461.66 | 0.29 | 5.99 | 1.01 | 1.01 |
| ICICI Pru Equity-Arbitrage Fund | 24,759.62 | 0.35 | 5.97 | 1.00 | 0.96 |
Disclaimer: Please note that the above table is for educational purposes only, and is not recommendatory. Please do your own research or consult your financial advisor before investing. The data is derived from Tickertape Stock Screener and is subject to real-time updates.
Note: The funds mentioned were taken from Tickertape Mutual Fund Screener on 1st January 2025.
- Plan: Growth
- 5Y CAGR: Sorted from Highest to Lowest
- SEBI Risk Category: Low
- Tracking Error: Mid
- Volatility: Low
🚀 Pro Tip: You can use Tickertape’s Mutual Fund Screener to research and evaluate funds with over 50+ pre-loaded filters and parameters.
Overview of the Best Low Risk Mutual Funds
Here is a brief overview of the best mutual funds with high returns and low risk listed above:
Tata Arbitrage Fund
Tata Asset Management, with over 25 years of experience in investment management, offers the Tata Arbitrage Fund, a popular low risk SIP plan. As of 1st January 2025, the fund had assets under management (AUM) worth of Rs. 12,589.05 cr., and an expense ratio of 0.30%. Furthermore, the fund had a 5-yr CAGR of 6.27%, a volatility of 0.96%, and a tracking error of 1.04.
Invesco India Arbitrage Fund
Invesco, a global investment firm with a strong international presence, offers this fund with a minimum lumpsum investment of Rs. 1,000. As of 1st January 2025, the fund had an AUM worth Rs. 18,251.89 cr., and an expense ratio of 0.39%. Furthermore, the fund had a 5-yr CAGR of 6.25%, a volatility of 1.01%, and a tracking error of 1.02.
Edelweiss Arbitrage Fund
Edelweiss Asset Management is known for its dynamic approach and rapid growth in India’s mutual fund industry. As of 1st January 2025, the fund had an AUM worth Rs. 12,199.21 cr., and an expense ratio of 0.38%. Furthermore, the fund had a 5-yr CAGR of 6.22%, a volatility of 1.01%, and a tracking error of 1.01.
Kotak Equity Arbitrage Fund
Kotak Equity Arbitrage Fund is an open-ended hybrid mutual fund that aims to generate returns by exploiting price differences between the cash and derivatives markets. As of 1st January 2025, the fund had an AUM worth Rs. 54,915.38 cr., and an expense ratio of 0.43%. Furthermore, the fund had a 5-yr CAGR of 6.19%, a volatility of 1.01%, and a tracking error of 0.96.
Nippon India Arbitrage Fund
A leading player in India’s mutual fund space, Nippon India Mutual Fund offers the Nippon India Arbitrage Fund with a minimum SIP of Rs. 1,500. As of 1st January 2025, the fund had an AUM worth Rs. 15,418.46 cr., and an expense ratio of 0.39%. Furthermore, the fund had a 5-yr CAGR of 6.09%, a volatility of 0.97%, and a tracking error of 1.01.
Axis Arbitrage Fund
Axis Asset Management, backed by Axis Bank, offers this fund with a minimum investment of Rs. 500. As of 1st January 2025, the fund had an AUM worth Rs. 5,591.95 cr., and an expense ratio of 0.34%. Furthermore, the fund had a 5-yr CAGR of 6.05%, a volatility of 0.95%, and a tracking error of 1.00.
Baroda BNP Paribas Arbitrage Fund
This fund is a joint venture between Bank of Baroda and BNP Paribas Asset Management, offering a minimum SIP of Rs. 500. As of 1st January 2025, the fund had an AUM worth Rs. 1,375.64 cr., and an expense ratio of 0.38%. Furthermore, the fund had a 5-yr CAGR of 6.00%, a volatility of 1.00%, and a tracking error of 1.17.
HSBC Arbitrage Fund
Managed by HSBC Global Asset Management, this fund has a minimum SIP of Rs. 500. As of 1st January 2025, the fund had an AUM worth Rs. 2,447.57 cr., and an expense ratio of 0.26%. Furthermore, the fund had a 5-yr CAGR of 6.00%, a volatility of 1.05%, and a tracking error of 1.09.
UTI Arbitrage Fund
India’s mutual fund industry offers the UTI Arbitrage Fund. With a lumpsum minimum investment of Rs. 5,000. As of 1st January 2025, the fund had an AUM worth Rs. 6,461.66 cr., and an expense ratio of 0.29%. Furthermore, the fund had a 5-yr CAGR of 5.99%, a volatility of 1.01%, and a tracking error of 1.01.
ICICI Pru Equity-Arbitrage Fund
ICICI Prudential Asset Management, a trusted leader in the Indian asset management industry, offers the ICICI Pru Equity-Arbitrage Fund. As of 1st January 2025, the fund had an AUM worth Rs. 24,759.62 cr., and an expense ratio of 0.35%. Furthermore, the fund had a 5-yr CAGR of 5.97%, a volatility of 1.00%, and a tracking error of 0.96.
How to Invest in Low Risk Mutual Funds?
You can easily invest in low risk mutual funds by following these steps:
- To invest in mutual funds, you can visit an equity investment platform such as smallcase or Tickertape.
- The next step would be to research and identify the best low risk funds to invest in which aligns with your investment thesis. You can easily select and learn more about the best low risk funds with the help of a financial tool like the Tickertape Mutual Fund Screener. With 50+ pre-loaded filters, it helps you to create a comprehensive list by giving insights about the fund’s performance. Try it now!
- Once you have selected the funds based on different metrics and parameters, go to smallcase.com or the smallcase app, and login via your phone number. Click on ‘Discover‘ and enter the name of the specific mutual fund name in the search bar and hit enter. You can click on ‘invest now’ and select whether you want to invest a lump sum amount or start a SIP and start investing!
However, if you’re confused about which stocks to pick, you can explore smallcases:
- smallcases are readymade portfolios of stocks/ETFs, that are based on a theme idea or strategy
- They’re created and managed by SEBI-registered experts
- smallcase.com offers over 500+ stock portfolios, created by 180+ managers
- Some of the popular smallcases among new investors are as follows:
Disclosures for aforementioned smallcases
What are Low Risk Mutual Funds?
Low risk mutual funds are designed to provide relatively stable returns while minimising risk. They are not entirely risk-free but generally offer better returns and greater tax efficiency compared to traditional investments like fixed deposits, making them a suitable choice for cautious investors seeking best mutual funds with low risk.
Debt funds, a popular type of low risk funds, invest in money market instruments, government bonds, and other low-risk securities. Within debt funds, you’ll find various schemes, including liquid funds, dynamic bond funds, gilt funds, and ultra-short-term funds.
Although debt funds carry some interest rate and credit risk, investing in higher-rated bonds can help mitigate these risks. These funds focus on delivering optimal returns with minimal risk, making them an excellent option for parking idle funds for short periods and achieving a low risk high return SIP experience.
How Do Low Risk Mutual Funds Work?
Low risk high return mutual funds 2024 in India may provide a stable and secure way to grow your wealth. Here’s a detailed overview of how these low risk mutual funds in India operate:
Diversification
These low risk and high return mutual funds in India often spread investments across various assets, such as government bonds and money market instruments. This diversification may help in reducing the risk from market fluctuations, making them some of the safe mutual funds to invest in 2024.
Professional Management
Professional fund managers, who are skilled and experienced, make informed investment decisions to optimise returns while managing risk. This expertise in management is key to the performance of low risk mutual funds with high returns.
Risk Mitigation
Low-risk mutual funds prioritise stable and reliable assets, often imposing restrictions on riskier investments. For those wondering “are mutual funds high or low risk,” these funds demonstrate how risk can be minimised effectively.
Liquidity
One of the attractive features of low risk mutual funds in India is their liquidity. These funds are relatively easy to buy and sell, providing you with quick access to your money whenever needed.
Returns
Although they focus on safety, low risk mutual funds with high returns can offer regular dividends and aim for capital appreciation. This makes them particularly attractive for conservative investors looking for safe mutual funds with high returns.
Features of Low Risk Mutual Funds
- Optimal Risk Reward Ratio: Low-risk mutual funds invest in high-rated securities, aiming to provide a balance between safety and returns. Unlike volatile equity mutual funds, these funds may offer more stability, making them potentially suitable for short-term investments.
- Strategic Asset Allocation: These funds primarily focus on debt instruments such as government bonds, T-bills, and debentures. Fund managers often carefully select securities with excellent credit ratings and a history of strong returns, which may help in ensuring optimal performance.
- Diverse Fund Types: Low-risk mutual funds offer a variety of schemes tailored to different investment goals. You can choose from options like liquid funds, ultra-short-term funds, gilt funds, or dynamic bond funds to align with your objectives.
- Short-Term Gains: These funds are designed for short-term, low-risk investments, emphasising stability due to their investments in high-rated and government securities.
- Capital Protection and Returns: Low risk mutual funds aim to provide optimal returns while safeguarding your capital, which might appeal to conservative investors seeking safe mutual funds to invest in 2024.
- Tax-Efficient Choice: Investors in higher tax brackets may benefit from tax savings by choosing low-risk mutual funds over traditional bank deposits. These funds offer long-term tax advantages, thanks to the indexation benefits provided by debt fund investments.
Who Should Invest in Low Risk Mutual Funds?
These funds are suitable for different types of investors, including:
- Conservative investors: Those who prioritise capital preservation over high returns may find these funds ideal for their stability and security.
- Retirees: Retired individuals seeking steady income without much fluctuation can benefit from low-risk mutual funds, such as bond or money market funds, for consistent returns.
- Short-term goal seekers: Investors aiming for short-term goals, like saving for a vacation or building an emergency fund, may find these funds a safe choice to achieve their objectives.
- First-time investors: Beginners, including those looking for the best stocks to buy for beginners, in the financial markets often prefer low-risk mutual funds due to their simplicity and stability, making them a comfortable entry point into investing.
- Income seekers: Investors focused on generating regular income rather than capital growth may go for low risk mutual funds with high returns that prioritise dividend or interest income.
How to Choose the Best Low Risk Mutual Funds?
Assess Your Investment Horizon
The first step in choosing the best low risk high return mutual funds may involve assessing your investment horizon. You should consider how long you plan to keep your money invested. Low risk investments typically suit investors with a longer time frame, as they offer stability and security. The longer your investment horizon, the more you might benefit from these low risk high return mutual funds in India.
Define Your Investment Objectives
Clearly defining your investment objectives is crucial for successful low risk investing. Are you looking for capital preservation, regular income, or a mix of both? Different low risk mutual funds cater to specific goals, so understanding your objectives can guide your selection of the best & less risk mutual funds.
Match Investment Style
Mutual funds come in various styles, such as equity, debt, or a blend of both. Your investment style should align with your risk tolerance and objectives. Low-risk funds often focus on fixed-income securities and may be categorised as income or balanced funds. Ensuring that your investment style suits your needs can help in achieving your financial goals with low risk high return mutual funds in India.
How are Returns Calculated on Low Risk Mutual Funds?
Understanding how returns are calculated for low risk mutual funds is essential for informed investing. Here are key factors that impact return calculations:
- Net Asset Value (NAV): NAV reflects the fund’s current worth and changes daily. Your return is the difference between purchase and sale NAVs, plus any distributions.
- Dividends and Interest Income: Low-risk funds like liquid and money market funds earn returns through dividends and interest income. Calculating returns involves summing these amounts received.
- Capital Gains: These gains occur when the fund manager buys and sells assets. They are calculated based on asset purchase and sale prices, considering transaction costs.
- Total Return: To determine the fund’s overall return, you combine NAV changes, dividends, interest income, and capital gains.
Taxation on Low Risk Mutual Funds as per the Union Budget for 2024-25
The taxation on capital gains from your mutual fund investments is based on their holding periods and asset allocation. A few revisions were made to the tax rates, depending on their types, in the Union Budget 2024-25. In order to select the best low risk high return funds, it is important to learn about these revisions as well. They include:
Equity Mutual Funds
- Tax-Free Limit: The capital gains up to Rs. 1.25 lakh per year are tax-free. This is an increase from the previous limit of Rs. 1 lakh.
- Tax Rate: The gains exceeding Rs. 1.25 lakh are now taxed at a flat rate of 12.5%. This is an increase from the previous rate of 10%.
- Indexation: It allows investors to adjust the purchase price for inflation. The government has removed the benefit of indexation for all asset classes, including equity mutual funds. The new rule imposes a flat 12.5% tax on all long-term capital gains but eliminates any indexation benefits.
| Capital Gains Tax | Holding Period | Old Rate | New Rate |
| Short-Term Capital Gains (STCG) | Less than 12 months | 15% | 20% |
| Long-Term Capital Gains (LTCG) | More than 12 months | 10% | 12.50% |
Debt Mutual Funds
- Tax Rate: A flat 12.5% tax rate applies to these gains.
- No Indexation Benefit: The previous benefit of adjusting the purchase price for inflation is removed. Now, the entire gain after three years is taxable at 12.5%.
- Change in Holding Period for Specified Mutual Funds: Previously, debt mutual funds with a holding period of over 36 months were taxed based on the investor’s tax slab, classified as Long-Term Capital Gains (LTCG). Now, for specified mutual funds where over 65% of the investment is in debt, the holding period for taxation has been reduced to over 24 months. These funds will still be taxed according to the investor’s tax slab as either LTCG or STCG.
| Capital Gains Tax | Holding Period | Old Rate | New Rate |
| Short-Term Capital Gains (STCG) | Less than 36 months | Taxed according to your income tax slab | Taxed according to your income tax slab |
| Long-Term Capital Gains (LTCG) | More than 36 months | 10% | 12.50% |
Hybrid Mutual Funds
| Type of Hybrid Fund | Short-Term Capital Gains (STCG) | Long-Term Capital Gains (LTCG) | Indexation Benefit |
| Equity-Oriented Hybrid Funds | 20% for holdings less than 1 year | 12.5% for holdings over 1 year, with gains up to Rs. 1.25 lakh tax-free | Not available |
| Debt-Oriented Hybrid Funds | Taxed as per income tax slab for holdings less than 3 years | 12.5% for holdings over 3 years | Not available |
Note: Mutual fund schemes where neither the equity nor debt orientation exceeds 65% will now be classified as long-term investments after 24 months. The previous holding period for these funds was 36 months. These will be taxed at the revised LTCG tax rate of 12.5%.
Challenges of Investing in Low Risk Mutual Funds
Investing in low-risk mutual funds can be a wise financial move for conservative investors. However, there are several challenges to consider:
- Lower Potential Returns: Low risk investments are known for their stability, but this also means they can typically offer lower returns compared to higher-risk investments. If you’re seeking substantial growth in your investments, you might need to consider alternative options with potentially higher risk.
- Inflation Risk: One of the primary challenges of low risk investing is the risk of not keeping pace with inflation. Inflation erodes the real value of your investments over time, and if your returns don’t outpace inflation, your purchasing power may decrease.
- Market Conditions: While low-risk funds, including some of the most trusted stocks in India, aim to minimise market volatility, they are not entirely immune to it. Economic downturns, interest rate fluctuations, or changes in market conditions can affect the performance of these funds, even if to a lesser extent than high-risk investments.
- Interest Rate Risk: Low-risk mutual funds often invest in fixed-income securities. When interest rates rise, the value of these securities may decrease, leading to potential capital losses. It’s essential to understand whether mutual funds are high or low risk. Learn how to manage these safe mutual funds with high returns in different interest rate environments.
Benefits of Investing in Low Risk Mutual Funds
In 2024, the top low-risk mutual funds offer a comprehensive range of benefits:
- Swift Goal Attainment: You may achieve your short-term financial objectives within a year effortlessly.
- Minimal Risk: These safe mutual funds to invest in eliminate credit risk, remain resilient to interest rate fluctuations, and mitigate inflation’s impact, although with minimal exposure.
- Supplementary Income: These funds not only safeguard your capital but also serve as an additional income source.
- Tax-Efficient Investments: You may enjoy significant tax savings, especially if you are in higher income brackets, by leveraging long-term capital gains and indexation benefits.
- Superior Returns: These funds provide capital security along with enhanced returns compared to fixed deposits.
- On-Demand Liquidity: Say goodbye to cash crunches during financial emergencies; you can access your funds swiftly.
To maximise your ROI and meet your investment objectives, considering these aspects carefully before making your investment decisions may be beneficial.
Factors Affecting Investment in Low Risk Mutual Funds
Investing in very low risk high return funds involves several factors that may influence your choices and outcomes. Here are some key determinants to consider:
Risk Tolerance and Investment Goals
Your personal risk tolerance and financial objectives play a crucial role in determining whether mutual funds with high returns and low risk align with your investment strategy. If you prioritise capital preservation and are risk-averse, these funds may be suitable. However, if you seek higher returns and have a higher risk tolerance, you might need to explore other options.
Market Conditions
The overall economic and market climate significantly impacts low-risk mutual funds. They typically perform well in stable economies. During times of uncertainty, they might outshine riskier investments due to their focus on stability and capital protection.
Interest Rate Environment
Interest rates directly affect returns, especially for funds invested in debt instruments. Rising rates can decrease bond values, affecting the fund’s net asset value, while falling rates can increase bond prices, potentially leading to capital gains.
Fund Management
The expertise and strategies of the fund manager play a critical role in the fund’s performance. Skillful managers who select high-quality securities and manage the portfolio effectively can significantly impact returns.
Expense Ratios
You may want to keep an eye on expense ratios, as lower expenses could enhance your returns by allowing you to retain more of your investment gains over time.
Tax Considerations
Understanding the tax implications, such as capital gains taxes and dividend distributions, specific to low-risk mutual funds may help you optimise your after-tax returns.
Economic Indicators
Monitoring key economic indicators like inflation rates and GDP growth may provide insights into the economy’s health and its potential impact on your low-risk mutual fund investments.
To Wrap It Up…
In summary, when it comes to low-risk mutual funds, a thorough understanding of your investment options is crucial. This article has highlighted the key aspects of low-risk mutual funds to provide you with valuable insights. Low-risk investments offer stability, but it’s crucial to assess your financial situation and seek guidance from a financial advisor. Diversifying your portfolio with low-risk mutual funds is a smart step toward financial security. Stay informed about market trends and adapt your strategy to achieve long-term success.
Frequently Asked Questions(FAQs) on Low Risk Mutual Funds
Money market funds, liquid funds and ultra short duration funds are generally considered to be low risk mutual fund investments. However, no such category ascertains low risk and investors must do their own research and/or consult a financial advisor before investing.
Before investing, review the fund’s performance, expense ratio, manager expertise, and goals. To mitigate risk, diversify your portfolio to reduce risk by spreading investments across multiple funds.
Assessing a mutual fund’s risk involves considering several factors:
1. Standard deviation, which measures volatility.
2. Beta, which gauges market sensitivity.
3. Historical performance in varying market conditions.
These parameters help us understand how the fund has managed risk.
Low-risk mutual funds focus on preserving capital and delivering steady returns, which might limit their growth compared to riskier investments. Although some low-risk funds can achieve moderate long-term growth, their primary goal is to minimise the chances of substantial losses.
When choosing from low risk category mutual funds, consider factors like your investment horizon, objectives, style, historical returns, and the fund managers’ experience. Before investing, balance these factors against your personal financial needs.
Mutual funds are generally considered a safe investment option, ideal for diversification with low risk. However, mutual funds may not be the optimal choice for some investors, particularly regarding fees.
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