If you’re someone who wants to grow your money without losing sleep over market swings, you’re not alone. Many investors — especially first-timers, retirees, or those with short-term goals — prefer low-risk mutual funds. And the good news is, you don’t have to sacrifice returns for safety. Today, there are several low-risk mutual fund options that offer decent, consistent returns without exposing your hard-earned money to unnecessary risk. Some of the best options in this category include Liquid Funds, Short Duration Debt Funds, Conservative Hybrid Funds, and Arbitrage Funds.
They are stable, less volatile, and offer higher returns compared to a normal savings account or even fixed deposits, but with very little risk involved.
Here in this blog, we will introduce:
- Which low-risk mutual funds are
- Who they’re suited for
- The top-performing low-risk funds of 2025
- Tips to select the most appropriate one for your use
What are low-risk mutual funds?
Low-risk schemes are plans which emphasize capital protection over high returns. The funds generally invest in secure instruments like:
- Government papers
- Company bonds
- Treasury bills
- Or a mix of debt and equity with a very minor equity component
They work towards:
- Avoid sharp declines in declining markets
- Generate stable and consistent returns
- It is suitable for short- to medium-term goals
Who Can Invest in Low Risk Mutual Funds?
Low-risk mutual funds are most appropriate for people who:
- They do not want to see wild fluctuations in their investment
- Are they accumulating for short-term objectives (1–3 years)?
- Are new to mutual funds and would like to begin with conservative
- Are retirees searching for predictable monthly income
- Pursue higher returns than from savings accounts or fixed deposits without assuming high market risks
Types of Low-Risk Mutual Funds (With Examples)
Let us examine the most favorable categories of low-risk mutual funds, along with real examples that one might contemplate in the year 2025.
1. Liquid Funds
Risk Level: Extremely Low
Best For: Storing money securely for a couple of weeks up to several months
Liquid funds invest in 91-day or shorter short-term obligations. They’re ideal for savings for emergency or extra money you might need in the near future.
✅ Benefits:
- Effectively zero market risk
- More returns than savings accounts
- Rapid withdrawal (in 24 hours in most instances)
Examples:
- Nippon India Liquid Fund
- Axis Liquid Fund
- SBI Liquid Fund
Average range of return: 4.5% – 6.5% annually
2. Ultra Short Duration Funds
Risk Level: Low
Most suitable for: Short-term objectives (3–12 months)
These invest in bonds and instruments that have a tenure of 3 to 6 months. Slightly better return opportunities than liquid funds, with very low risk.
Examples:
- The HDFC Ultra Short Term Fund
- Kotak Savings Fund
- ICICI Prudential Ultra Short Term Fund
Average return range: 5% – 7% annually
3. Short Duration Debt Funds
Risk Level: Low to Moderate
Best Suited For: 1–3 year plans
These funds invest in debt securities that mature in 1 to 3 years. They trade off return and risk less than very short-term funds.
Examples:
- SBI Short Term Debt Fund
- IDFC Bond Fund – Short Term Scheme
- Axis Short Term Fund
Average range of returns: 6% – 7.5% p.a.
4. Conservative Hybrid Funds
Risk Level: Moderate (but less than equity funds)
Suitable for: Investors who seek regular income as well as low equity exposure
These funds invest about 75–90% in debt and 10–25% in equity. They give your money some growth without assuming full stock market risk.
Examples:
- The ICICI Prudential Regular Savings Fund
- HDFC Hybrid Debt Fund
- Kotak Debt Hybrid Fund
Average return range: 7% – 9% annually
5. Arbitrage Funds
Risk Level: Low (market-neutral)
Suitable for: Investors who want low-risk equity-like funds with tax benefits
These funds take advantage of equity market price differentials and provide equity-taxation advantages (less long-term capital gains tax).
Examples:
- Nippon India Arbitrage Fund
- Edelweiss Arbitrage Fund
- Kotak Equity Arbitrage Fund
Range of average return: 5.5% – 7.5% annually
How to Choose a Suitable Low-Risk Mutual Fund
Here are some tips for you to make the right choice:
- Identify your objective and the duration
Short-term parking? Emergency fund? Regular income? Choose a fund matching the goal duration. - Look back at previous performance (but not in isolation)
Consider 1-year, 3-year, and 5-year average returns. Although past results don’t necessarily predict future results, it’s helpful to know. - Pay attention to the expense ratio
Even low-risk funds can chip away at your earnings with exorbitant fees. Choose funds with low expense ratios (especially in liquid and debt categories). - Tax implications
If saving tax is the objective, arbitrage funds or ELSS (if you can tolerate 3-year lock-in) can be a better bet. For overall returns, consider post-tax returns.
Select direct plans from reliable platforms. Direct plans provide you with better returns (no agent commission). Use apps such as Groww, ET Money, Kuvera, or visit the Purplepond (The award-winning financial advisor and planner in South India) website directly.
Common Questions
💬Will my investment be completely safe in low-risk mutual funds?
There is no investment that is completely risk-free. But these funds are some of the safest on the planet for mutual funds. Be selective and invest with reputable fund houses.
💬Are they better than fixed deposits?
Yes, on the whole, low-risk mutual funds provide higher post-tax returns compared to FDs, with greater flexibility.
💬Can I withdraw whenever I want?
Yes, they all have simple withdrawal facilities, but see exit load regulations — a few funds charge if taken out prematurely.
Final Comments
For those that wish to contribute to their wealth without taking on too much risk, low-risk mutual funds are a sensible choice.
Low-risk mutual funds give more returns than traditional savings tools but do so while still holding a relative degree of safety for one’s money.
Saving for short-term goals, creating an emergency fund, or merely having the peace of mind, investment tools like Liquid Funds, Arbitrage Funds, and Short-Term Debt Funds are specifically designed to help with these very purposes.
