When it comes to investing, buying mutual funds offers a convenient way to build wealth over time. However, the challenge lies in choosing the right funds that offer both low risk and high returns.
For many investors, especially those new to the world of mutual funds, the idea of balancing risk and return can feel overwhelming.
Fortunately, with the right knowledge and approach, you can make smart choices that minimise risks while aiming for solid returns.
Let’s start by addressing the basics of what it means to buy mutual funds and how they could fit into the overall investment strategy. By selecting the right options, you can ensure your investments provide the desired growth without the stress of high-risk ventures.
Understand your investment goals
Before you begin buying mutual funds, it is important to understand your own goals and risk tolerance.
Are you investing for long-term growth, short-term gains, or specific financial milestones? Knowing your objectives will help guide your decisions.
For example, if you’re planning for retirement in 20 years, a higher-risk fund may suit you. On the other hand, if you need liquidity in the short term, a lower-risk fund, such as a liquid mutual fund, might be a better option.
How to select low risk options while buying mutual funds?
When it comes to low risk options, it’s crucial to focus on stable, well-established funds. These tend to have a history of consistent returns and are less volatile.
There are several types of mutual funds you can choose from, but the ones that usually provide lower risks include:
- Index funds: These funds invest in a broad market index like the NSE’s Nifty50 and typically offer lower volatility compared to actively managed funds. While returns can be more moderate, they are usually more predictable and stable.
- Bond funds: These funds invest in government and corporate bonds. They tend to be less volatile than stock funds and are a good option if you want steady returns over time.
- Liquid mutual funds: These funds are designed to offer low risk and high liquidity. They invest in short-term debt instruments and money market securities, making them a safe option for investors who want fast access to their funds without compromising much on returns.
Diversification is key
One of the best ways to minimise risk in your mutual fund portfolio is through diversification. By spreading your investments across different sectors, asset classes, and regions, you can reduce the impact of any one investment underperforming.
A diversified portfolio allows you to weather market fluctuations more effectively and provides a more stable return over time.
For example, instead of putting all your money into one stock-focused mutual fund, you might invest in a mix of bond funds, index funds, and liquid mutual funds. This way, if the stock market takes a downturn, your bond funds may help cushion the loss.
Risk-adjusted returns
When buying mutual funds, it’s essential to consider not just the returns but also the risk-adjusted returns. This term refers to the level of return you can expect for the level of risk you are taking on.
A high-return fund may seem attractive, but if it comes with a lot of risks, it might not be the best choice for you.
Look at the historical performance while buying mutual funds and assess how they have performed relative to their risk levels.
A fund with stable, consistent returns is often more desirable than one that promises high returns but fluctuates wildly.
Regularly review your investments
Once you’ve made your investments, it’s important to periodically review your mutual fund portfolio to ensure it continues to meet your financial goals.
Markets change, and so do personal circumstances. Regular reviews help ensure that your investments remain aligned with risk tolerance and financial objectives.
For instance, if you’re nearing retirement, you might want to shift towards funds with lower risks and more stable returns.
On the other hand, if you’re just starting your investment journey, you may choose to take on a bit more risk for potentially higher returns in the future.
Start investing with confidence today
Investing in mutual funds with low risk and high returns is entirely achievable with the right strategy and understanding of your personal goals.
By carefully selecting the funds that match your risk tolerance, focusing on diversification, and regularly reviewing your investments, you can steadily build a portfolio that grows over time.
A well-thought-out investment approach will allow you to enjoy the benefits of buying mutual funds while keeping risk levels low.
If you’re ready to start your journey towards low-risk, high-return mutual funds, consider exploring online stock trading and investment platforms like Ventura.
With expert advice and a range of investment options tailored to your needs, you can easily get started on the path to smarter, safer investments.
