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Low-risk mutual funds in India in 2022: Invest In To Ensure Stable Returns For Yourself

While Mutual funds are subjected to market risks, not every investor is comfortable bearing or can withhold such risks. Let us find out about the Low risk mutual funds in India.

Risks can be of any measure low, moderate, or high. Low-risk funds especially attract a major chunk of investors because of all the valid reasons. This article will take you on a tour of all the essentials of the low-risk funds so you can choose an investment option that aligns with your objective and justify your risk profile so you get the returns you are aiming for.

As the name implies, low-risk funds offer minimal risk and stable returns. These funds are debt-oriented and invest primarily in real estate, government-regulated bonds, etc. With a low-risk fund, an investor can ensure low risk and high reward ratio for their portfolio.

Best Low-risk Indian funds to invest in 2022

With a variety of funds available under the low-risk investment, investors can choose funds as per their investment objective. The following table exhibits top-performing low-risk funds and returns over time. 

Scheme NameDirect plan - Growth optionMinimum SIP(Rupees)Minimum Lump Sum(Rupees)AUM(Rs. crores)3 years(Absolute returns)5 years(CAGR)
Edelweiss Government Securities Fund5005000112.131.98%10.76%
DSP G-Sec Fund500500415.118.13%7.68%
ICICI Pru Gilt Fund1,0005,0002,457.268.07%7.51%
ICICI Pru Short Term Fund1,0005,00018,176.857.62%7.55%
Aditya Birla SL Short Term Fund1,0001,0007,942.297.53%7.53%

Who should invest in low-risk mutual funds? 

Low-risk funds are suitable for every investor wishing to invest in mutual funds, especially those with a low-risk appetite. These funds have low volatility and can easily cater to low-risk tolerance levels, helping all category investors to carry out better returns. Investors who wish to invest their ideal money for a short term (3 years or less) can also opt for low-risk funds. These funds are an excellent alternative to saving bank accounts to preserve money and earn a regular income. Before investing, make sure you get your risk profiling done through an investment planner or advisor. It is essential to determine the range of your risk-bearing ability to make a well-informed decision. 

Taxability of low-risk mutual funds 

Low-risk mutual funds generate capital returns and hence are taxable. The tax rate depends on the duration you stay invested and gain from the funds. Depending on the investment duration, you may generate Short-term capital gains (STCG) and Long-term capital gains (LTCG) and be taxed accordingly.

  • Short-term capital gains: The profits generated in the first or before three years of investment are known as STCG. The returns are added to the investor's yearly incomes and taxed as per the applicable slab rate.
  • Long-term capital gains: The profits from investments made for more than three years are known as LTGC. The returns get taxed at a flat 20%, along with some indexation benefits.

If you fall under higher income tax slabs, you may earn tax-efficient returns compared to bank fixed deposits.

The risk involved in low-risk mutual funds

Even though the low-risk funds have negligible credit risk and interest rate risk, other associated risks can affect the potential to generate better returns. 

  • Inflation risk: The low-risk mutual funds are more sensitive to inflation risks. Inflation risk means the return you gain from an investment may be less when adjusted for inflation. The price of stocks of companies may remain the same for a long time and you may end up earning an insignificant amount. 
  • Flexibility risk: In high-risk stocks, the traders can buy and sell the units according to market trends to generate profits. But, with low-risk investments, you may have to wait for a long time to sell them for returns.
  • Interest risk: In this situation, the value of a bond or other fixed-income investment suffers because of a change in the interest rates.

Return potential of low-risk mutual funds 

Low-risk mutual funds are debt-oriented funds and offer decent yet stable returns. These funds invest money in high-rated AAA bonds with high credit ratings. As a result, these funds have higher returns and are comparatively tax-efficient than FD. But, while low-risk mutual funds deliver better returns than Bank FDs, their returns are much lower than that of equity funds. Therefore, these funds are suitable if you have surplus idle money, are just starting with mutual funds, have short-term financial goals, or have a low-risk appetite. 

Advantages of low-risk mutual funds 

Low-risk mutual funds offer a lot of benefits that investors can reap by investing in the funds.

  • Ideal for short-term investment: Individuals looking to fulfil their short-term goals, let's say less than one year, can opt for low-risk mutual funds. 
  • An excellent income source: Besides offering capital security to investors, low-risk funds prove to be the best source to ensure a supplementary income. Investors can generate consistent income with minimal risks. 
  • High returns compared to bank FDs: Low-level funds provide the same level of security as bank FDs but with the added advantage of offering better returns in a short timeframe. FDs can be restrictive at times but not low-risk mutual funds. 
  • Tax saver for certain income slabs: Individuals with high tax slab rates can save considerable tax amounts by investing in low-risk rinds rather than FDs. Tax saving benefit is more apparent in long-term capital gains that levy hefty taxes. 
  • Adequate liquidity: Investors who invest in low liquidity funds tend to suffer cash crises in case of financial emergencies. With a low-risk fund, liquidity is never a problem. Investors can easily dissolve their share in case of emergencies. 

Why should you invest in low-risk mutual funds? 

Low-risk mutual funds are a great investment tool to generate gradual wealth and a consistent income. Here are reasons why people should consider investing in low-risk mutual funds, especially those with less risk appetite and investment horizon.

  • Low risk, high reward Ratio: Low-risk funds invest in high-rated AAA securities. Although these funds are not entirely risk-free, they offer decent returns. Besides, you don't have to be concerned about the market volatility all the time, which is not the case with equity funds. For a short duration, low-risk funds can be an ideal investment option to get consistent yields. 
  • Diversified investment options:  These funds have numerous schemes with different investment purposes. Depending on your investment objective and goal, you can choose a suitable fund scheme from low-risk funds, such as liquid, ultra-short-term, gilt funds, and dynamic bond funds.
  • Less investment duration: Low-risk mutual funds are for short-term investments. These funds invest in high-rated government schemes, so returns are often stable compared to other mutual funds. 
  • Tax Efficiency: With low-risk mutual funds, investors can enjoy long-term tax benefits as these are debt-oriented and offer indexation benefits. Investors under higher tax brackets must consider low-risk funds than bank deposits. 


Low-risk mutual funds offer the safest investment way to earn profits or get an alternative source of income. They can considerably lower the market risks and offer adequate liquidity so you can meet your energy financial needs. Before selecting any fund option, consider your investment horizon, risk factor, exit load, expense ratio, past performance of the fund house and manager, etc. You can invest in low-risk mutual funds through SIP without bearing too much risk to earn good returns.


Got queries related to mutual fund investment? See if we got you covered!

  1. How can I choose the best low-risk mutual funds?
    • Ans: The choice of funds will depend on various factors such as the fund manager's performance, historical returns, expense ratio, investment horizon, investment objective, etc. Investors must analyze every aspect before selecting any mutual fund.
  2. How much can I invest in low-risk mutual funds? 
    • Ans: It depends on your financial objective, budget, and requirements. Low-risk funds are usually for short-term investments and are better and safer than other options available to generate good returns. If you have a surplus of money in hand, you can invest in these funds without a doubt.
  3. How to invest in low-risk mutual funds? 
    • Ans: You can directly visit the mutual fund website and select your preferred fund. Else, you can take assistance from a broker or intermediary platform such as Glide invest and start investing in mutual funds through SIP or lump sum. 
  4. What is the best time to invest in low-risk mutual funds?
    • Ans: The best part about low-risk mutual funds is you can invest at any time. If you have a short-term investment horizon of (3 years or less) and have ideal cash in hand, you are ready to invest in these funds. 

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