What Are High-Risk Mutual Funds?

6 mins read
by Angel One

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.

Read More About: What is Mutual Fund?

Features of High-Risk Mutual Funds 

High-risk mutual funds, also known as aggressive or speculative funds, are investment vehicles that aim for high returns but come with increased volatility and the potential for significant losses. Here are some features typically associated with high-risk mutual funds:

  • High Volatility: These funds are characterised by significant fluctuations in value over short periods. They are more susceptible to market volatility, economic downturns, and other external factors.
  • Investment in High-Risk Assets: High-risk mutual funds often invest in assets such as small-cap stocks, emerging markets, commodities, or derivatives, which tend to be more volatile and less liquid compared to traditional assets like large-cap stocks or bonds.
  • Aggressive Investment Strategies: Fund managers of high-risk mutual funds may employ aggressive investment strategies, such as leverage (borrowing money to amplify returns), short-selling (betting on price declines), or concentrated portfolios focused on specific sectors or regions.
  • Potential for High Returns: The primary allure of high-risk mutual funds is the potential for outsized returns. These funds target investors seeking higher returns than what can be achieved through more conservative investments.
  • Limited Diversification: While some high-risk funds may offer diversification, others may concentrate their investments in a few high-risk assets or sectors. Limited diversification increases the fund’s risk exposure to specific market conditions.

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.

Advantages of High-Risk Mutual Fund

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.

Factors Influencing High-Risk Mutual Funds

Several factors influence high-risk mutual funds, shaping their characteristics, performance, and risk profile. These factors include:

  • Market Conditions: High-risk mutual funds are heavily influenced by overall market conditions, including economic indicators, interest rates, inflation, and geopolitical events. These funds often perform well in bullish markets but can experience significant losses during market downturns or economic crises.
  • Investment Strategy: The investment strategy employed by the fund manager plays a crucial role in determining the fund’s risk level. Aggressive strategies such as leveraging, short-selling, concentrated portfolios, and investing in volatile assets like small-cap stocks or emerging markets can increase the fund’s risk exposure.
  • Asset Allocation: The allocation of assets within the fund portfolio significantly impacts its risk profile. High-risk mutual funds may allocate a substantial portion of their assets to high-risk securities, such as equities, commodities, or alternative investments while limiting exposure to more conservative assets like bonds or cash equivalents.
  • Volatility: High-risk mutual funds are inherently more volatile than low-risk funds. Factors contributing to volatility include market fluctuations, company performance, industry dynamics, and investor sentiment.
  • Sector and Geographic Exposure: High-risk mutual funds may focus on specific sectors or geographic regions, leading to concentrated exposure and increased risk. Sector-specific factors such as regulatory changes, technological advancements, or market disruptions can significantly impact fund performance.

How To Invest in High-Risk Mutual Fund?

Investing in the high-risk mutual fund is hassle-free when done through your Angel One account. You just have to follow these simple steps:

Step 1: Log in to your Angel One account. 

Note: In case you do not have an account with Angel One, you can open a free demat account with us in under a few minutes by submitting the necessary documents.

Step 2: Determine a high-risk fund that suits your needs and risk profile. You can learn more about each high-risk fund on the Angel One app. Things to consider at this stage are:

  1. Search for the fund you want to invest in.
  2. Analyse level of risk involved in investing in the fund. Check the fund’s ratings, expense ratio, past performance, tax incidence, and the sectors and companies it invests in. You can also calculate the potential returns using the calculator.

Step 3: Once you finalise the high-risk fund you want to invest in, open your Angel One account, go to the Mutual Funds section, and look for it. 

  1. Decide whether you want to invest via SIP or make a one-time investment
  2. Decide your monthly SIP date. Now, enter the amount you want to invest and choose the payment mode.
  3. After placing the order, you can create an AutoPay to make hassle-free future instalments in case of SIP investments.

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.


What makes a fund a high-risk fund?

A high-risk fund typically invests in assets that have the potential for high returns but also come with increased volatility and the possibility of significant losses.

How to invest in high-risk funds?

Investing in high-risk funds requires careful consideration and risk assessment. Here are some steps to invest in such funds

  • Research: Understand the fund’s investment strategy, historical performance, and risk factors.
  • Assess Risk Tolerance: Determine if you can tolerate the potential for significant losses and volatility associated with high-risk investments.
  • Diversify: Consider spreading your investments across multiple high-risk funds to reduce specific risk exposure.

Are High-risk mutual funds safe?

High-risk mutual funds are not inherently safe investments. While they offer the potential for high returns, they also come with increased volatility and the risk of substantial losses.