Low Risk Funds

About Low Risk Mutual Fund

A low-risk mutual fund is an investment vehicle that has minimal risk with stable return assurance. The investments are broadly ventured into government bonds, real estate, etc. Low-risk mutual funds are typically ahead of inflation. In order to facilitate this, the fund manager invests a majority portion of the assets into debt instruments. By selecting low-risk mutual funds investors would be able to complement the risk-reward ratio in their portfolio. The investing strategy of these funds is inclined toward protecting the downside. One of the ways to mitigate downside protection in a low-risk mutual fund is to have a balanced mix of different asset classes like Equity, Debt & Gold.

How do Low Risk Mutual Funds Work?

Low-risk mutual funds aim for stability by investing in conservative assets such as bonds, money market instruments, or dividend-yielding stocks. These funds pool capital from various investors and utilise a professional fund manager for investment choices. The manager selects a diversified portfolio of conservative assets to reduce the chance of substantial losses. Investors in low-risk mutual funds receive returns through dividends, interest earnings, or capital appreciation. These funds are perceived as safer since they prioritise preserving capital over aggressive growth. However, they typically offer less potential for returns compared to higher-risk investments like equities.

Features of Low Risk Mutual Funds

1. These funds predominantly have their scheme allocation in government bonds, real estate, infrastructure, treasury bills, debentures, etc. low-risk mutual funds are one of the best SIP plans to invest in the market considering the fact that there are minimum risks involved.
2. Given the fact that the asset classes are largely invested in government bonds, debentures, treasury bills, and money market instruments, low risk mutual funds may yield better returns.
3. High credit rated instruments are taken into consideration by the fund managers to perform their analysis across various securities and invest in them based on historical returns. Fund managers invest in less volatile sectors when compared to equity funds. An average low risk mutual fund duration can vary between 3 months to 3 years for short duration schemes. Whereas, for medium-term funds, the duration is usually 3-5 years.

Advantages of Low Risk Mutual Funds

Low risk mutual funds have certain unbeatable benefits that other market vehicles cannot provide:

• Increased Liquidity: Low risk mutual funds enhance liquidity compared to other low liquidity funds and are less likely to run into a cash crunch during a financial crisis. Investors can tap into their money whenever required in case of emergencies.
• Minimal risk: These funds possess minimal risk and that makes them the perfect choice for investors looking to meet their short-term financial goals without hampering their returns. Low-risk funds also manage to offset the effects of inflation.
• Better performance compared to FD: When it comes to investing with minimal or no risk, traditionally investors tend to bank fixed deposits. Nevertheless, Low risk mutual funds offer the same secure feeling as an instrument on the investment capital by also offering increased returns.

Risk of Low Risk Mutual Funds

As the name suggests, a low risk mutual fund carries very minimal risk or no risk at all. Given the nature of investment and the instruments involved, a low risk mutual funds typically generate risk free returns for the investor.

Some of the popular categories of low-risk mutual funds that possess minimal risk are:

• Banking & PSU
• Liquid funds
• Ultra-short duration funds
• Low duration funds
• Gilt funds

Factors To Consider Before Investing in Low Risk Funds

1. Objective and Time Horizon: Determine your investment goals and how long you plan to invest. Low-risk mutual funds are typically suited for short to medium-term goals.
2. Risk Tolerance: Assess your risk tolerance to ensure it aligns with the fund's risk level. Low-risk funds aim for stability, but there is still some risk involved.
3. Expense Ratio: Lower expense ratios mean you keep more of your returns. Look for funds with competitive fees.
4. Performance History: Review the fund's historical performance to gauge its consistency and ability to achieve steady returns.
5. Diversification: Ensure the fund is adequately diversified across different asset classes to reduce risk. A well-diversified portfolio can enhance stability.

By considering these factors, you can make informed decisions when investing in low-risk mutual funds.

Who Should Invest in Low Risk Mutual Funds?

If you are a conservative investor, then you may choose to invest in low-risk mutual funds. Low-risk mutual funds could be a good fit for those investors who are new to investing and who do not know the schematics of other mutual fund options present in the financial world. Such new investors could be labelled as having a limited or low-risk appetite. And due to these reasons, a debt instrument could be ideal for any person who is aiming for the same level of security as a fixed deposit but expects slightly higher returns. A low-risk mutual fund helps in maintaining high liquidity in an investor’s portfolio. There are a few factors to be considered for investors before investing in a low-risk mutual fund:

1. Time Duration: Investors who are looking to park their money for a period of up to one year can explore a low-risk mutual fund as an investment option as they aid in achieving their short term financial goals.
2. Investment Objective: Just like any other mutual fund, investors have to evaluate their investment portfolio, and asset allocation percentages before opting for a low-risk mutual fund and choose it only if it is in line with their objectives and time duration.
3. Risk Appetite: High liquidity is a form factor of a low-risk mutual fund and is not impacted by credit risk. That said, investors need to know and understand that a low-risk mutual fund is not resistant to inflation which could result in a decline in estimated returns. It is crucial that investors consider their risk exposure to evaluate losses or diminishing returns when there is underperformance in a scheme.

Taxability of Low Risk Mutual Funds

The taxability of low risk mutual funds remains the same as how we tax debt funds. It is taxed as per the investor’s income tax slab after a holding period of 36 months. If the holding period exceeds 36 months then the fund is taxed at 20% with an indexation benefit. Indexation benefit enables investors to inflate the purchase price to account for inflation adjustment. Tax liability on these funds would completely depend on one’s income tax slab. Investors should be keen to earn a tax-efficient income as compared to fixed deposits if they fall under the highest income tax slab rate. When an investor earns dividends on theirlow risk mutual fund investments, the dividends are included in their taxable income and subject to taxation based on their income tax bracket. That said, tax deducted at source or a TDS of 10% is imposed when the dividend amount is more than ₹5,000 from any single mutual fund.

How to Invest in Low Risk Mutual Funds?

Investing in Low-Risk Mutual Funds through your Angel One account is a straightforward process. Follow these steps to get started:

Step 1: Begin by logging into your Angel One account using your registered mobile number. Verify the OTP and enter your MPIN.

Note: If you don't currently hold a Demat account with Angel One, you can swiftly open one by completing the KYC process and providing the necessary documentation.

Step 2: Now, it's time to select the most suitable low-risk fund based on your financial requirements. You can assess each fund within the mutual fund section on the Angel One app. Consider the following factors during this stage:

• Search for the specific low-risk fund you wish to invest in or take recommendations from funds listed by Angel One across different categories with lower risk profiles
• Analyse the fund's historical performance, tax implications, sectors, and stocks it comprises with an emphasis on stability and security.
• Calculate the potential returns using the provided calculator, keeping in mind the lower risk associated with these funds.
• Evaluate the fund's rating from reputable agencies, usually falling within the lower risk spectrum.
• Consider the fund's expense ratio, which tends to be relatively lower in low-risk funds.

Step 3: Once you've decided on the low-risk fund(s) you want to invest in, navigate to your Angel One account, access the Mutual Funds section, and locate your chosen low-risk fund. As these funds are generally suitable for conservative investors, take the following steps:

• Decide whether you want to invest a lump sum or opt for a monthly SIP (Systematic Investment Plan) for a steady, low-risk approach.
• Enter the desired investment amount and select your preferred payment method, with UPI being a secure choice.
• If you've chosen the SIP route, set up a mandate for hassle-free future instalments.
• By following these steps, you can easily invest in low-risk Mutual Funds through your Angel One account while prioritising capital preservation and stability.

Top 10 Low Risk Mutual Funds to Invest in

Note: The above data is as of February 2026

Mahindra Manulife Overnight Fund (DD-IDCW) 

Mahindra Manulife Overnight Fund (DD-IDCW), managed by Rahul Pal and Amit Garg, was launched on 24 July 2019 and is benchmarked against the CRISIL Liquid Overnight TR INR index. Its main objective is to generate returns aligned with relatively low risk while maintaining a high degree of liquidity. To achieve this, the scheme primarily invests in overnight securities with a maturity of one business day, including instruments such as TREPS (Tri-Party Repo) and Reverse Repo. It has an expense ratio of 0.09%.

Kotak Arbitrage Fund 

Kotak Arbitrage Fund is managed by Hiten Shah and was launched on 29 September 2005. It is benchmarked against the NIFTY 50 Arbitrage TR INR index. The scheme aims to deliver capital appreciation along with income by primarily investing in arbitrage opportunities between the cash and derivatives segments of the equity market. The remaining portion of the portfolio is allocated to debt and money market instruments to maintain stability and liquidity. However, there is no guarantee that the fund will achieve its stated investment objective. It has an expense ratio of 0.44%.

Invesco India Arbitrage Fund (IDCW) 

Invesco India Arbitrage Fund (IDCW) is managed by Deepak Gupta and Manish Kalani and was launched on 30 April 2007. It tracks the NIFTY 50 Arbitrage TR INR as its benchmark. The scheme seeks to earn income by capitalising on price differences between the cash and derivatives segments of the equity market. Additionally, any surplus funds are invested in fixed income instruments to enhance returns and maintain portfolio stability. It has an expense ratio of 0.40%. 
 

Invesco India Arbitrage Fund

Managed by Deepak Gupta and Manish Kalani, the fund was launched on 30 April 2007 and is benchmarked against the NIFTY 50 Arbitrage TR INR. It aims to generate income by leveraging pricing differences between the cash and derivatives segments of the equity market, while deploying surplus funds in fixed income instruments to optimize returns and maintain stability. It has an expense ratio of 0.40%. 
 

Tata Arbitrage Fund (M-IDCW Payout)

Tata Arbitrage Fund (M-IDCW Payout) is managed by Sailesh Jain and was launched on 18 December 2018. It uses the NIFTY 50 Arbitrage TR INR as its benchmark. The scheme aims to deliver reasonable returns by primarily investing in arbitrage opportunities across the cash and derivatives segments of the equity market, while allocating the remaining portion of its assets to debt and money market instruments for stability and liquidity. It has an expense ratio of 0.31%. 
 

Tata Arbitrage Fund (M-IDCW)

Managed by Sailesh Jain, the fund was launched on 18 December 2018 and is benchmarked against the NIFTY 50 Arbitrage TR INR. Its objective is to generate steady returns by mainly capitalising on arbitrage opportunities between the cash and derivatives segments of the equity market, while investing the remaining assets in debt and money market instruments to support liquidity and risk management. It has an expense ratio of 0.31%. 
 

Tata Arbitrage Fund

Tata Arbitrage Fund, overseen by Sailesh Jain, was introduced on 18 December 2018 and follows the NIFTY 50 Arbitrage TR INR as its benchmark. It seeks to achieve moderate returns by primarily utilising arbitrage strategies in the equity market’s cash and derivatives segments, while allocating the remaining portfolio to debt and money market instruments to maintain liquidity and manage risk. It has an expense ratio of 0.31%. 
 

SBI FMP-57-1835D

The fund is managed by Ranjana Gupta and was launched on 08 December 2021. It is benchmarked against the CRISIL Medium to Long Term Debt TR INR index. The scheme aims to generate regular income along with capital appreciation while keeping interest rate risk relatively contained. It invests in a portfolio of debt instruments that mature on or before the scheme’s maturity date.