Mutual funds are a great investment instrument to add to your growing portfolio. They come in various options, and you can invest in these regardless of their budget. Additionally, you can easily manage and track these investments using a Mutual Fund Tracker.
In this article, we’ll take a look at the difference between low-risk and high-risk mutual funds, as well as how to choose the best ones for you.
What Exactly is ‘Risk’ in Investment Terminology?
‘Risk’ is one of the most integral aspects of investing. People who are new to investing may have trouble identifying the risk and the critical differences between high-risk and low-risk mutual funds.
One can define risk in investing as the potential of an asset permanently losing its value or performing below expectations. As a broad guideline, the higher the risk, the higher the returns, and conversely, the lower the risk, the lower the returns.
Investors can be categorized by risk-taking preference, otherwise known as risk profile or risk appetite. Those who are comfortable with the potential ups and downs of the stock market or with investment opportunities that have a higher level of risk involved are usually called aggressive investors.
Conversely, individuals who are not comfortable with the idea of potentially losing money in risky investments (even if the returns are high) are called risk-averse. However, you can also have a moderate risk profile and opt for
What are Low-Risk Investment Mutual Funds?
Low-risk mutual funds have minimal risk and assurance of stable returns. These funds are generally restricted to government bonds and real estate, protecting against inflation. Low-risk mutual funds typically invest a large portion of assets into debt instruments.
Low-risk funds are a good choice for short-term financial goals that need to be fulfilled within a year or two. They can also provide the same degree of security as fixed deposits, except with a higher return and minimal risk.
If you want stable, predictable returns, low-risk mutual funds can help achieve that and moderate the risk-reward ratio in your investment portfolio.
What are High-Risk Investments Mutual Funds?
High-risk mutual funds often come in various types, such as equity hybrid fund schemes, balanced advantage schemes, credit risk fund schemes, and so on. These funds primarily allocate their assets in stocks and bonds of developing companies. Although far more volatile, high-risk mutual funds come with higher returns.
In general, high-risk mutual funds are more suited for more experienced investors and have comprehensive knowledge about the market and market trends. However, you can opt for these funds if you’re an investor with a greater risk appetite and seek higher ROI or if you’re comfortable subjecting your portfolio to market volatility.
Which Type of Mutual Fund Should You Opt For?
There’s no right or wrong choice for everyone with mutual funds. However, there are some parameters by which you can assess the suitable investments for you.
- Risk Profile: Imagine one day checking your Mutual Fund Tracker and discovering that you lost a significant amount from one of your funds; would you be calm or in a panic in such a scenario? It’s a good idea to opt for low to moderate risk funds when just starting out.
- Goals: Consider what your future financial goals are. Do you need the money soon or want to invest for a longer-term?
- Fund Performance: Checking the past performance of a particular fund is very useful and can help you make a more confident investment Ensure to check the historical returns of each fund and compare them.
If you’re a new investor and just delving into the world of mutual funds, first outline your budget, goals, and risk appetite, and then begin researching various mutual funds available. Be sure to always remember to consult a Mutual Funds Advisor or professional financial planner before making a decision.
Once you’ve invested, eliminate the trouble of individually checking the performance of each fund and instead use a Mutual Fund Tracker that manages all your fund investments in one place, so you can analyze and stay updated on your investments without any hassle.