Learn all about High Return Mutual Funds and their features and benefits.
To grow your wealth, you can choose various investment instruments, including Mutual Funds. Mutual Funds are investment vehicles designed for investors with varying risk appetites and different investment tenures. Most investors wish to invest in high return Mutual Funds. But did you know that such funds also carry high risks? Let us decode high-risk high return Mutual Funds in this article.
High-risk, high return Mutual Funds are typically those that invest in Equity. Equity Funds are distinguished from other Mutual Funds because of their specific reward-risk dynamic. These kinds of Mutual Funds can fetch you high returns, but their risk-to-returns ratio is significantly high. While you may book profits, you may just as quickly lose your capital investment amount. These funds exhibit volatile tendencies, making them relatively unpredictable.
High return, high-risk mutual funds are suitable for investors with an aggressive risk appetite. Investors who understand the pulse of the equity investment market, are comfortable with market volatility, and have the time to track daily market movements, can consider investing in these high-risk Mutual Funds.
The SEBI has classified Equity Mutual Funds into ten sub-categories. These include large, mid, and small-cap funds, thematic and sector funds, ELSS funds, Focused Funds, dividend yield funds, etc. As such, you can choose from a wide variety.
Equity funds allocate anywhere from 65% to 80% of assets in equities, which is why they are called high-risk Funds. This feature reduces your scope of risk mitigation considerably. This high asset allocation can prove incredibly profitable in a bullish trend while the scope for losses increases in a bearish trend.
With high return Mutual Funds, the risk to returns ratio is proportional. The adage ‘higher the risk, higher the reward’ was perhaps coined for this type of investment.
High returns funds tend to generate exceptional returns if they perform well. You can watch your capital investment increase in the short and long term. Long-term investment can help grow your profits significantly.
You can enjoy tax benefits on high-risk, high return investments. For instance, with ELSS funds, you can claim deductions of up to INR 150,000 under Section 80C, which translates to tax savings of INR 46,800 for those in the 30% income tax slab. However, you have to pay Short term and Long Term Capital Gains on your returns.
You can invest in High Return Mutual Funds through two investment modes – Lumpsum and via Systematic Investment Plan (SIP). You can invest a fixed amount at regular intervals through SIP investments in a high-risk, high return mutual fund scheme.
A high-return, high-risk mutual fund investment can help you create a corpus in the short term. However, you must ensure you check your risk profile and investment goals before investing. Also, remember to consider the expense ratio, which impacts returns, before you invest in a High Risk Fund.
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*Disclaimer: This article is for information purposes only. We recommend you get in touch with your income tax advisor or CA for expert advice.