Mutual funds come with a disclaimer that says, “Mutual-fund investments are subject to market risks, please read the offer document carefully before investing.” Why do fund houses publish or advertise this line? The answer is simple: there are no ‘risk-free’ mutual fund investments. You have low-risk investments and high-risk investments, never ones without some risk. Even within equity-oriented funds, you can opt for investing in large-cap funds or multi-cap funds if you are a conservative investor with a low appetite for risk. If, you’re an aggressive investor, keep a close watch on market movements and, have a huge appetite for risk, you can invest in high-risk mutual funds.
These funds are risky but give higher returns. There are three broad investment options for investors who have a high tolerance for risk. These are mid-cap funds, small-cap funds, and sectoral funds. Mid-cap and small-cap mutual fund portfolios comprise stocks that are medium, small and new enterprises. Some mid-cap funds may be less risky if the stocks are of established companies. Sector funds are those which focus on a sector, for example, pharmaceuticals mutual funds, IT, banking, etc.
Everything you need to know
Here’s what you need to know before investing in high-risk mutual funds:
- Risk Appetite:
These funds are not for investors who are conservative or have a low tolerance for risk. Moreover, if you’re expecting high returns in shorter time-frames (3 years or less), then these funds are not for you. You need to have patience during fluctuating market cycles. These funds need a minimum holding period of 5 years to give the best returns on investment.
- Thorough Research Required:
You can’t jump into investing in these funds blindly. In the case of mid- and small-cap portfolios, you need to research individual stocks to review past performance. If investing in sector funds, you need to be aware of any policy changes, news-stories or developments which may affect your sector fund portfolio.
Reasons to opt for High-Risk Mutual Funds
High-risk mutual funds give proportionately higher returns in the long run. Most investors prefer these because:
- Comparatively, Higher Returns:
These fund portfolios may be risky, but their rate of return is proportionately higher. In most cases, the higher the risk, the higher the return. The reason for such high returns is the ability of stocks to recover quickly from market-related losses.
- Ability to Out-Perform Benchmarks:
The stock allocation of these portfolios comprises largely of companies that are growing or developing. This means that over time the quality of stocks improves, in-turn increasing the NAV. In positive market cycles the best of these funds outperform the benchmark, in the worst market cycles, investors can switch under-performing stocks with quality ones.
Get Better Returns with High-Risk Mutual Funds
High-risk funds are curated to offer the highest returns and have a particular investment objective.
- Increase Your Appetite for Risk:
These funds are not meant for conservative investors. However, sometimes in extreme market conditions, some investors tend to make a hasty retreat from their high-risk portfolios. You need to have the capacity to not panic when the NAV of stocks dips below expectations. The best option is to wait until markets improve and begin moving upward.
- Hold on to Your Investments:
Though mutual fund investments can be held for short periods of three years, for your portfolio to give you best returns, you need to broaden your investment horizon. Funds that are associated with high-risk and high-reward ratios need time-frames of at least 5 years to give good returns. The best high-risk funds have been known to give annualized returns as high as 16% in five years. This is higher in comparison to low-risk funds.
- Realistic Financial Goals:
You need to evaluate not only your risk-taking capacity but also define clear financial goals. Before investing in these types of funds, you need to set financial goals that can be achieved in 5 years or more. Lofty or unrealistic goals will only prompt you to make hasty or miscalculated investment decisions, which may be damaging to your wealth.
List of Best High-Risk Mutual Funds
|Fund Name||1 Year||3 Year||5 Year||Expense Ratio||NAV||Risk|
|L&T Midcap Fund||-7.43%||9.76%||13.56%||2.01%||₹125.03||High|
|Mirae Asset Emerging Bluechip Fund||10.79%||15.9%||19.78%||0.79%||₹ 52.127||High|
|UTI Transportation and Logistics Fund||-28.07%||-3.01%||5.55%||2.22%||₹84.28||High|
|HDFC Small Cap Fund||-5.29%||12.1%||13.6%||1.94%||₹40.14||High|
|L&T Emerging Businesses Fund||-10.27%||11.06%||13.45%||2.01%||₹22.66||High|
Best High-Risk Mutual Funds- Details
L&T Midcap Fund
L&T Mutual Fund started its mutual fund on 03/01/1997 and its managing total assets of ₹52,749 Cr. It is ranked at 12 as per total assets at end of 30th Sep 2017. L&T Mutual Fund offers a bouquet of mutual fund schemes for investors of various investing ideologies. It is one of the pioneering asset management companies of India that has made a mark of its own in the financial industry.
Mirae Asset Emerging Bluechip Fund
The investment objective of the scheme is to generate income and capital appreciation from a portfolio primarily investing in Indian equities and equity-related securities of large-cap and mid-cap companies at the time of investment. From time to time, the fund manager may also seek participation in other Indian equity and equity-related securities to achieve optimal Portfolio construction.
UTI Transportation and Logistics Fund
HDFC Small Cap Fund
Equity strategy aims to predominantly build a portfolio of small-cap companies which have reasonable growth prospect, sound financial strength, sustainable business models, an acceptable valuation that offers the potential for capital appreciation.
L&T Emerging Businesses Fund
The objective of the fund is to generate long-term capital appreciation from a diversiﬁed portfolio of predominantly equity and equity-related securities. In the Indian markets with key theme focus being on emerging companies (small-cap stocks). The Scheme could also additionally invest in Foreign Securities.
High-Risk Mutual Funds are the mutual funds for the investors who are interested in earning good returns from their investment in the mutual funds and have a high tolerance to high risk. The investors who have patience and are clear about their financial goals should opt for these funds as they can earn good returns from them.
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These funds have been shortlisted by undertaking certain parameters like NAV, past performances, peer average returns, etc. All the data is updated and is dated 19 July 2019.