What Are High-Risk Mutual Funds?

Mutual fund investment somewhat has moderate risk exposure. However, certain funds carry higher risks than others. These funds also have very high returns potential. As an investor, knowing which funds are the best bet according to your investor’s profile will help you earn better returns.

Usually, these funds are highly volatile, but at the same time, these pay high dividends to the investors. If you are adept to take more risks for higher returns, these funds are right up your alley. But you must remember to check the fund’s performance from time to time to ensure they are still performing per your financial goals.

High-risk mutual funds features

As the name suggests, these funds carry high risk with a promise of higher returns. Hence, these funds are suitable for high-risk appetite individuals who are willing to invest in risky assets. The best high-risk mutual funds can generate market-beating returns by investing in high-growth potential company stocks. These shares also pay higher dividends. Investors use these high-risk mutual funds for portfolio diversification because of their earning potential under the right market conditions.

Several high-risk mutual fund schemes offer sectoral exposure, allowing investors to put money in sectors anticipating higher growth. Through these funds, investors can also invest in new markets or upcoming sectors like the renewable energy segment or e-commerce.

These funds are not for investors who are risk-averse and concerned about the protection of their initial investment. High-risk mutual funds allow investors to invest in companies in their growth path. But it also means that these are not steady like the large corporations and are susceptible to market fluctuations, which can seriously impact the final return on your investment.

Taxation on high-risk funds

Capital gains from mutual fund investment are subject to capital gain tax. Since high-risk mutual funds invest in equity funds, the capital gain is taxed per capital gain tax rates. If the holding period is less than twelve months, a 15 percent short-term capital gain tax is applied. For an investment period of more than twelve months, the applied tax rate is 10 percent on the capital gain over Rs 1 lakh.

Significant advantages of high-risk funds

The primary advantage of investing in high-risk funds is the prospect of higher returns. The best high-risk mutual funds can deliver superior returns than any other investment scheme, making these attractive to aggressive investors. These funds allow investors to create wealth in the long run.

Secondly, these funds invest in companies growing at a fast pace. Hence, these companies pay higher dividends to investors. Mutual fund managers select funds that have higher possibilities to grow and generate better returns than others.

Who should invest in high-risk mutual funds?

These funds are for investors who can handle high risk. Experienced investors invest in these funds for higher returns. If you are investing in high-risk mutual funds, make sure to closely track the performance of your portfolio and make timely withdrawal decisions.

These funds are unsuitable for new investors, risk-averse, or retired senior individuals, who need to protect their initial investment corpus. High-risk funds are ideal for young investors with a long investment horizon since these funds generate returns over the long run. Saying it, these mutual fund schemes are not suitable to fund short-term goals.

The bottom line

Like any mutual fund investment, high-risk mutual funds also have a set of pros and cons. These funds are for investors with longer investment horizons. Before investing in high-risk, high-return mutual funds, research the market to find the best high-risk mutual funds that suit your requirements.