High Risk Mutual Funds

Note: As per SEBI’s mandate, mutual fund houses have to provide Product Labelling for every mutual fund. The risk-o-metre depicts the risk level of a scheme. On the basis of certain characteristics, the risk level of the fund is determined.

What are High-Risk Mutual Funds?

High-risk mutual funds have a high probability of generating significant returns. At the same time, these funds are highly volatile, and returns are not guaranteed. High-risk funds invest across volatile securities, and therefore the returns can sway in any direction. Since the funds invest across high-risk securities, it is a good practice to track your investments closely. Tracking the funds from time to time will help you minimize any potential downside risk. Also, you can analyze the performance of the fund with the changing market dynamics.

High-risk funds do not necessarily mean equity mutual funds. Debt schemes that invest in securities with low ratings are also risky. Furthermore, it is almost a prerequisite for you to have a long-term investment horizon while investing in high-risk mutual funds. With a long-term investment horizon, the volatility of the fund can be averaged out. Therefore, the potential to earn higher returns maximizes.

As the saying goes, the higher the risk, the higher will be the returns. Therefore, high-risk mutual funds have a greater potential to earn significant returns than low or moderate risk schemes. However, it is important to note that risk is a relative parameter, and one should be careful while picking funds.

Top 5 Popular High Risk Funds with Highest Returns 2024

Features of High-Risk Funds

Following are the features of High-Risk Mutual Funds:

• Risk-Reward Ratio: Higher the risk, higher the reward. Investing in high-risk mutual funds has a good potential to earn significant returns. Investing in high volatile securities individually can be costly and also risky. On the other hand, investing in high-risk mutual funds can be rewarding in the long term. The scheme’s volatility is likely to average out in the long term and help in generating significant returns.
• Asset Allocation: High-risk schemes invest across high volatile securities – emerging companies or low rated schemes. The asset allocation strategy plays a major role while choosing a mutual fund. For example, a hybrid mutual fund invests across equity and debt securities. Asset allocation plays a significant role in the performance of the scheme. High-risk funds have different schemes with diverse asset allocation strategies.
• Types of Funds: There are multiple schemes for investors to choose from under the high-risk category. Some of which are hybrid equity funds, hybrid debt funds, funds of funds, balanced funds, etc.
• Investment Duration: High-risk funds are a long-term investment option. The volatile nature of the scheme requires a long-term investment duration to average out the volatility and generate significant returns. 
• Investment Objective: High-risk funds focus on capital appreciation. Therefore, they are suitable for long term goals such as buying a house or saving for retirement.

Who Should Invest in High-Risk Funds?

• High-risk mutual funds are highly volatile investment options. Therefore, they are suitable for investors who have high-risk tolerance levels.
• Investors who have a long-term investment horizon (5 years or more) and who understand the risk associated can invest in high-risk schemes.
• High-risk funds are suitable for investors who wish to invest towards long term goals like retirement, a child’s education, buying a house, etc.
• Furthermore, investors who understand the market dynamics and the functioning of the stock markets can invest in high-risk funds.
• Therefore, it is important to align the fund’s investment objective with your investment goals before investing in high-risk funds. Choosing the right scheme for your goal will greatly impact the corpus you wish to build.