High risk mutual funds can generate a lot of money. These funds, however, are extremely volatile and come with significant risks. When you invest in a high risk mutual fund, you will need to monitor its performance regularly. This approach will allow you to keep track of your fund’s performance in the market.
These funds are risky, but they pay out handsomely. There are three major investing alternatives for investors with high risk tolerance–Mid-cap funds, small-cap funds, and sectoral funds. Mid-cap and small-cap mutual funds invest in equities from medium-sized, small, and emerging companies. Certain mid-cap funds will be less hazardous if the equities are from well-known firms. Pharmaceutical mutual funds, IT mutual funds, banking mutual funds, and so on are examples of sector funds.
Best High Risk Mutual Funds
Regarding high-risk mutual funds, the risk-reward dynamics are different compared to most other mutual funds. The risk in this context means the investor losing money in their investment. There are different degrees, low, moderate, and high risk- depending on how much money the investor has invested. To minimize the risk of losing large sums of money, investors aim for the best high-risk mutual funds to invest in.
This table denotes the top 5 high-risk mutual funds-
|Fund Name||Risk||1 Yr Returns|
|Aditya Birla Sun Life Asset Allocator FoF Fund||High||2.5%|
|Sundaram Equity Hybrid Fund||High||30.1%|
|ICICI Prudential Balanced Advantage Fund||High||9.3%|
|Axis Gold Fund||High||3.8%|
|HDFC Gold Fund||High||3.5%|
Investors may expect big payouts from these high risk high return mutual funds. You can select one of these funds if you are prepared to assume a big risk in exchange for a high return. As they say, “Mutual fund investments are subject to market risks; Before investing, carefully check the offer paper thoroughly.”
No mutual fund exists without any risk. There are low-risk and High Risk investments, but no investment is without risk. If you are a conservative investor with a little stomach for trouble, you can invest in large-cap or multi-cap funds within equity-oriented funds. You can invest in high risk high return mutual funds if you’re an active investor who keeps a close eye on market fluctuations and has a big risk-taking ability.
Many inexperienced investors mistakenly associate mutual fund investments with significant risk. However, relying on the portfolio mix and fund aim, very high risk mutual funds may carry varying degrees of risk. Based on their risk tolerance, investors can select a mutual fund. Those seeking better profits may have to invest in a very High Risk fund. Very high risk mutual funds are those that are heavily reliant on market projections. These are mostly equity funds and are best suited to aggressive investors with a basic understanding of stocks and how markets work. High risk high return mutual funds may subject certain mutual funds to extreme volatility to achieve larger returns. However, stocks may suffer disproportionately bigger losses whenever they do not perform well. Equity funds are often thought to be High Risk investments.
Features of High Risk Mutual Funds
In the long run, high risk high return mutual funds provide proportionately larger returns. Most investors favour them because
- Portfolios are not at risk of stagnation: Several low-risk funds confront the prospect of flat or no return over the next 5-10 years. It is not concerning, but it is detrimental to wealth generation and growth.
- Higher Returns in Comparison: Although portfolios of mutual funds are riskier, their return rate is high. In most cases, the greater the risk, the greater the payoff. Stocks’ ability to quickly recoup from business losses is the source of such enormous returns.
- Ability to Outperform Benchmarks: The stock allocations in these portfolios are often made up of growing or emerging companies. The stock’s quality improves with time, resulting in a higher NAV. High risk high return mutual funds outperform the benchmark in bull markets, but investors may replace underperforming stocks with high-quality ones in bad markets.
- Higher return as compared to low and medium-risk funds.
- Coordinate with long-term financial goals since it has the potential to outperform inflation over time.
- If you fall into one of the higher income tax brackets, they provide more tax-efficient returns than bank fixed deposits.
- It required deep fundamental and technical analysis before investing.
- It is parallel with market return and risk and requires active investment in response to assessed market performance and indicators.
Who Should Invest in High Risk Mutual Funds
Very high risk mutual funds are extremely volatile and come with a high level of risk. Small and medium-sized businesses pose a larger risk to investors. However, they may grow into great firms, resulting in bigger returns. Experienced Small & Mid Cap Fund Managers are the best at identifying such high-potential stocks.
Furthermore, while participating in very high risk high return mutual funds, a long-term investment perspective is nearly necessary. Investors can balance the fund’s volatility over time with a long payback horizon. As a result, the opportunity to make bigger returns increases.
Also Read: Best Performing Mutual Funds in India
Advantages of Investing in High Risk Mutual Funds
- One of the foremost benefits of investing in very high risk funds is that it helps investors diversify their investment portfolio
- Despite the volatile nature of these funds, they are managed by professionals who are supported by professional experts in the financial domain
- When compared to direct investments in the capital market, mutual funds entail a low cost for investors.
- Mutual funds are registered with SEBI and operate to monitor activity and secure the interests of anyone investing.
Also Read: Tax Saver Mutual Funds
Key Risks of Mutual Fund Investments
- The foremost risk associated with mutual fund investments is that of the market. Any fluctuations in the market would have a positive or negative impact on the investment. There are a plethora of factors that can have a significant influence on the market, such as a natural disasters, inflation, political unrest, interest rate fluctuation, and more.
- Concentrating a big amount on a single scheme is not an advisable approach. While profits can be considerable, a situation of a big loss cannot be undermined. The most constructive way to avoid this risk is by diversifying the portfolio.
- Interest rate fluctuation is another risk associated with mutual fund investments. The interest rates can change with any movement in the credit availability of the lenders and the borrowers’ demand.
Did you know:
High risk high return mutual funds are suitable for a long gestation period having a long-term goal on funds that are not required soon.
List of Some Top Performing High Risk Mutual Funds
- PGIM India Midcap Opportunities Fund
- Nippon India Small Cap
- ICICI Prudential Small Cap Fund
- SBI Small Cap Fund
- Edelweiss Mid Cap Fund
Word to Remember
High risk high return mutual funds are mutual funds for investors who want to get a solid return on their mutual fund investment while also being willing to take on many risks. Investors with patience and a firm understanding of their financial goals may consider these products since they can provide high returns. These high risk funds are not for investors with a low-risk tolerance or who expect bigger returns in shorter time frames. As an investor, you need to have clear, realistic, and medium to long-term investment goals.
We’ve categorised the best high risk high return mutual funds into four categories: equity large-cap mutual funds, tax planning mutual funds, credit possibilities mutual funds, and debt long-term income mutual funds. The nature of the high risk connected with each fund is the sole criteria taken into account when picking other factors.
Market risks might be associated with mutual fund investments. The performance or credit-worthiness of any mutual fund is not guaranteed besides its higher risks. So please do fundamental and technical analysis before investing.
You would find the short-term capital gains (after a holding period below one year) taxed at 15% with applicable cess. The long-term capital gains, or LTCG (after a holding period of one year or more), are taxed at 10%.
Because very high risk mutual funds perform best over 5-7 years, capital appreciation over time is recommended for long-term investment goals. These funds are also good at producing inflation-adjusted returns.
Market risk is the most significant risk associated with equity mutual funds. Equity mutual funds are classified as ‘High Risk’ investment vehicles.
If you know stock markets and the time to select the right investment, you will have to stay invested long-term or have adequate patience.
If you want to achieve long-term financial objectives like retirement planning or homeownership, or if you want to fight inflation.
If you have a strong understanding of the particular sectorial markets such as pharma, oil and gas, infrastructure, and so on. It could offer a higher return as compared to many equity funds.
Quant Multi Asset Fund, ICICI Prudential Equity and Debt Fund, Edelweiss Aggressive Hybrid Fund are some of the low-risk mutual funds in India.