What are Medium-risk Funds?


Investors who invest in mutual funds are often not aware of their risks.

The best medium-risk mutual funds try to maintain a balance between the risk and return

Investors who invest in mutual funds are often not aware of their risks. The Association of Mutual Funds in India (AMFI) has categorized mutual funds based on the risk exposure of mutual funds. There are High-risks funds, Medium-risks funds and Low-risks funds. AMFI made it mandatory for fund houses to specify the level of risk exposure so that investors become cautious about it before investing in a particular fund. We have already discussed High-risk mutual funds to protect the interest of investors. In this article, let’s throw light on Medium-risk Mutual funds.

How do Medium Risk Mutual Funds work?

The best medium-risk mutual funds try to maintain a balance between the risk and return element of the portfolio. To keep this balance, Medium-risk mutual funds invest in a combination of debt and equity instruments to take care of investors’ capital by exposing them to moderate market risks against inflation-adjusted returns.

Here debt instruments can offer fixed returns, while equity investments can give higher returns during market upswings. The asset allocation is often altered depending on the prevailing market condition. The main objective is to earn steady returns over the investment horizon of 1-3 years. For example, large-cap mutual funds, aggressive hybrid funds, dynamic bond funds, short-duration funds and arbitrage funds fall under the purview of medium risk category.

Features of Medium Risk Mutual Funds

  • The primary objective of most medium-risk mutual funds is to generate stable risk-adjusted returns focussing on moderate risk instruments. As such, even losses will be moderate to low in a down market.
  • Medium risk mutual funds expose investors’ capital to moderate risks such as credit and interest risks depending on the interest rate fluctuation & volatility of the stock market over time.
  • These mutual funds invest in a combination of equity and debt instruments for earning sustainable risk-adjusted returns.
  • The investment horizon for wealth creation spread over a 3-5 year time span.
  • As these are a mix of debt and equity, they are taxed accordingly. However, capital gains attract long-term or short-term capital gains tax based on the duration for which the fund is held, and TDS is applicable above a specified amount.

Advantages of Medium Risk Mutual Funds 

  • Investors earn a steady risk-adjusted return over a long time.
  • It gives scope for portfolio diversification and lowers the impact of losses.
  • Investors with mid-term financial goals such as paying off debts, making down payments, buying a car, and others can achieve them by investing in these funds.
  • These funds are tax-efficient compared to Fixed Deposits if you fall in a higher IT bracket.
  • Investors can easily choose SIP or lump sum mode to invest.
  • It is safer compared to High-risk investments.

Who should invest in Medium Risk Mutual Funds?

Every individual investor has a particular pattern of risk tolerance. Therefore, they are free to choose mutual funds that suit their risk- appetite, like low-risk, medium-risk, or high-risk mutual funds. Medium risk mutual funds are ideal for risk-conscious investors looking to create a stable portfolio and fetch returns within 3+ years where risk is moderate.

It is best for investors looking for portfolio diversification to balance out the overall risk. In addition, this kind of mutual fund is ideal for new investors to pick depending on their investment objective and portfolio requirements.

Conclusion

Be it Medium-risk or High-risk, tracking a mutual fund’s performance is crucial for investors before making any investment decision. It includes the investor’s investment goal and risk profile, the fund’s past performances, AMC track record, fund managers’ performance, expense ratio, credit ratings, and many more. To make it easier for you, talk to a financial expert who can guide you better.

That’s why Comparte Investment team asks do you have “Nivesh Ki Aadat”.

With this one can say “Mutual Fund Sahi hai”,  so let me do Nivesh