High-Risk Mutual Funds

Many new investors often tend to link mutual fund investments to a high amount of risk. However, mutual funds could have varying degrees of risk depending on the portfolio composition and fund objective. Investors can choose a mutual fund depending on their risk appetite. 

Those who prefer higher returns may have to choose a high risk mutual fund investment. High risk mutual funds are schemes that primarily depend on the market movement forecasts. These mainly comprise equity funds and are ideal for aggressive investors who have some level of knowledge on stocks and market functioning. Here, we will explore high risk funds in detail and share some of the top performing high risk mutual fund recommendations.

What is are High Risk Mutual Funds?

Some mutual funds may be exposed to significant volatility in order to generate higher returns. However, these may also incur comparatively higher losses when markets do not perform well. Generally, equity funds are considered high risk.

Within equity funds, mid-cap or small-cap funds are rated higher on the riskometer. This is because mid-cap and small-cap funds invest in medium-sized firms and small growing companies, respectively. While these have higher opportunities for growth and their stock prices may rise up to give higher returns, the stock prices may also fall down because of reasons like poor performance of the company, market downturn, etc.

Asset Management Companies often conduct thorough research to determine the possibility of higher returns from investments before establishing a portfolio and offering it to investors.

Who should invest in High Risk Mutual Funds?

Here are the factors to be considered by investors while determining their suitability for a high risk mutual fund investment:

  • Ideal for investors with knowledge of markets : High-risk mutual funds are ideal for investors who possess a good understanding of the markets and have a high-risk appetite. Knowledge of the markets is important while investing in high risk mutual funds as it allows to actively track the fund performance.
  • Suitable for long term investments: These funds can be volatile in the short term. But they may fetch high returns in the long run. Hence they are suited for investors who can remain invested for a long term (minimum 5-7 years).
  • May not allow regular returns : Every mutual fund has some pros and cons that must be carefully considered while investing. It is also important to consider the mutual fund objective against personal financial goals. Since high-risk funds generally offer long-term capital appreciation, they may not be suited for those who prefer liquidity through regular returns.
  • Suits a balanced investor: Investors who invest in high risk mutual funds must ensure to maintain a portfolio balance through parallel investments in less risky funds such as Large Cap funds or fixed-income funds. This will help in maintaining a sustainable risk-return ratio in the portfolio and ensure diversification.

Things to know before investing in High Risk Mutual funds

Here are the important factors that must be considered while investing in high risk mutual funds:

Taxation

Tax treatment of the returns generated from mutual funds are dependent on the timeline of investment. For instance, if an investor gets a capital gain of Rs. 50,000 from an investment in an equity fund, Short Term Capital Gains Tax of 15% is applicable if the amount is withdrawn within one year of investment. Thus, the tax payable will be Rs. 7,500.

If an investor makes a capital gain of Rs. 1.5 lakh on an investment in an equity fund and withdraws the amount after 1 year of investment, Long Term Capital Gains Tax of 10% is applicable on Rs. 50,000. Rs.1 Lakh is exempted from tax. Thus, the tax payable will be Rs. 5,000.

Fund Track Record

Investors can diversify their portfolio by including high-risk mutual funds within the same. However, it is important to take into account the expense ratio of a high-risk fund, along with the fund manager’s track record. The performance record of the AMC and that of the mutual fund against its benchmark index must be carefully studied before selecting a high risk mutual fund for investment.

Top Performing High Risk Funds to Invest in 2021

Some of the top performing high risk mutual fund recommendations for 2021 are:

Mid-Cap Funds

Mid-cap funds invest in stocks of mid-cap companies. Mid-cap is short form for medium or middle capitalisation. Mid-cap companies have a market capitalization ranging between Rs. 500 crores to Rs. 10,000 crores. BSE -Midcap Index comprises mid-cap companies. Mid-cap stocks are often under-researched and under-valued. Therefore, while these may be high risk, they may also have the potential to generate higher returns. 

  1. Kotak Emerging Equity Scheme
About the fund

The scheme aims to generate long-term capital appreciation through investments in equity and equity-related securities. It focuses on investments predominantly in mid-cap companies. The fund invests 97.45% in Indian stocks of which 64.12% is in mid-cap stocks, 24.76% in small-cap stocks and 5.19% is in large-cap stocks.

Inception DateJanuary 01, 2013
Benchmark NameNIFTY Midcap 100 Total Return Index
Fund ManagerPankaj Tibrewal
Expense Ratio0.54%
Historical Returns of the Fund (annualised)
1-Year2-Year3-Year5-Year10-Year
98.04%29.15%16.05%18.92%20.31%
  1. Edelweiss Mid Cap Fund
Inception DateJanuary 1, 2013
Benchmark NameNIFTY Midcap 100 Total Return Index
Fund ManagerHarshad Patwardhan
Expense Ratio0.71%
Historical Returns of the Fund (annualised)
1-Year2-Year3-Year5-Year10-Year
97.08%31.09%14.80%18.88%21.19%
  1. Axis Midcap Fund
About the fund

The fund aims to achieve long-term capital appreciation through investments predominantly in equity & equity related instruments of Mid-Cap companies. It has 95.3% investment in Indian stocks of which 60.49% is in mid-cap stocks, 12.55% is in large-cap stocks and 9.37% in small-cap stocks.

Inception DateJanuary 01, 2013
Benchmark NameS&P BSE Mid Cap Total Return Index
Fund ManagerShreyash Devalkar
Expense Ratio0.50%
Historical Returns of the Fund (annualised)
1-Year2-Year3-Year5-Year10-Year
67.98%28.84%19.21%20.04%19.85%
  1. HDFC Mid-Cap Opportunities Fund
About the fund

The scheme aims to provide long-term capital appreciation through investments predominantly in Mid-Cap companies. The fund invests 95.01% in Indian stocks of which 60.37% is in mid-cap stocks, 23.6% in small-cap stocks and 1.98% is in large-cap stocks.

Inception DateJanuary 01, 2013
Benchmark NameNIFTY Midcap 100 Total Return Index
Fund ManagerChirag Setalvad
Expense Ratio1.01%
Historical Returns of the Fund (annualised)
1-Year2-Year3-Year5-Year10-Year
93.49%22.99%11.69%16.78%19.48%

Small-Cap Funds

Small cap mutual funds are funds that invest a majority of the collected pool in stocks of small cap companies. Any company that has a market capitalization of under Rs. 500 crores falls under the small cap company segment. These are relatively smaller but have the potential to expand aggressively. Thus, small-cap mutual funds have higher potential of generating greater returns but carry higher degree of risk.

  1. SBI Small Cap Fund
About the Fund

The fund aims for long-term capital growth while offering sufficient liquidity through investments predominantly in a well-diversified basket of equity stocks of small cap companies. Fund invests 94.08% in Indian stocks of which, 73.07% in small-cap stocks and 9.38% is in mid-cap stocks.

Inception DateJanuary 1, 2013
Benchmark NameS&P BSE Small Cap Total Return Index
Fund ManagerR. Srinivasan
Expense Ratio0.87%

Historical Returns of the Fund (annualised)

1-Year2-Year3-Year5-YearSince Inception
107.23%33.46%15.89%22.86%26.90%
  1. Kotak Small Cap
About the Fund

The scheme’s objective is to generate capital appreciation through a diversified portfolio of equity and equity related securities. It invests predominantly in small cap companies. Fund invests 93.91% in Indian stocks of which 65.63% in small-cap stocks, 15.34% in mid-cap stocks and 2.13% in large-cap stocks.

Inception DateJanuary 01, 2013
Benchmark NameNIFTY Smallcap 100 Total Return Index
Fund ManagerPankaj Tibrewal
Expense Ratio0.57%

Historical Returns of the Fund (annualised)

1-Year2-Year3-Year5-YearSince Inception
143.20%40.25%18.94%20.75%20.24%
  1. Nippon India Small Cap Fund
About the Fund

The fund aims for capital appreciation through investments predominantly in equity and equity related instruments. It focuses on investments in small-cap companies. The fund invests 98.15% in Indian stocks of which 77.52% is in small-cap stocks, 6.17% is in mid-cap stocks and 4.2% is in large-cap stocks.

Inception DateJanuary 2, 2013
Benchmark NameNIFTY Smallcap 250 Total Return Index
Fund ManagerSamir Rachh
Expense Ratio0.99%

Historical Returns of the Fund (annualised)

1-Year2-Year3-Year5-YearSince Inception
129.36%31.76%15.02%21.77%20.15%
  1. Axis Small Cap Fund
About the Fund

The fund primarily invests in stocks of small-cap companies with the objective of achieving capital appreciation in the long run. 90.57% of the fund’s investment is in Indian stocks. Of this, 68.93% is in small-cap stocks and 10.9% is in mid-cap stocks.

Inception DateNovember 29, 2013
Benchmark NameNIFTY Smallcap 100 Total Return Index
Fund ManagerAnupam Tiwari
Expense Ratio0.36%

Historical Returns of the Fund (annualised)

1-Year2-Year3-Year5-YearSince Inception
97.39%34.99%22.03%20.73%24.97%

Multi-Cap Funds

Multi-cap funds are equity funds that aim for diversification through investment in stocks of companies with varying market capitalizations. The funds make investments in varying proportions to achieve the investment objective. A Multi-cap fund allows a fund manager the flexibility to switch investments in stocks of different market capitalisations. These are best suited for investors who have medium to high-risk appetite.

  1. Parag Parikh Long Term Equity
About the Fund

The scheme aims to achieve long-term capital appreciation through investments primarily in equity and equity related instruments. The fund consists of 65.39% investment in Indian stocks of which 33.97% is in large-cap stocks, 19.51% in small-cap stocks and 9.24% is in mid-cap stocks. 

Inception DateMay 28, 2013
Benchmark NameNIFTY 500 Total Return Index
Fund ManagerRaj MehtaRajeev Thakkar
Expense Ratio0.91%

Historical Returns of the Fund (annualised)

1-Year2-Year3-Year5-YearSince Inception
74.32%29.40%20.88%20.03%20.01%
  1. Aditya Birla Sun Life Equity Fund
About the Fund

The fund aims to achieve long-term capital growth and regular income through 90% investment in equities and remaining 10% in debt and money market instruments. It adopts a top-down & bottom-up approach to investing. It also invests a portion of the pooled money in IPOs, emerging sectors & other similar primary market offerings.

Inception DateJanuary 01, 2013
Benchmark NameS&P BSE AllCap Total Return Index
Fund ManagerAnil Shah
Expense Ratio1.17%

Historical Returns of the Fund (annualised)

1-Year2-Year3-Year5-YearSince Inception
76.26%19.14%12.70%16.66%17.28%
  1. UTI Equity Fund
About the Fund

The scheme aims to achieve long-term capital appreciation through investments predominantly in equity and equity related securities of companies across different market capitalizations. 98.02% of the pooled funds are invested in Indian stocks. Of this, 42.25% is invested in large-cap stocks, 33.93% in mid-cap stocks and 8.98% in small-cap stocks.

Inception DateJanuary 2, 2013
Benchmark NameNIFTY 500 Total Return Index
Fund ManagerAjay Tyagi
Expense Ratio1.22%

Historical Returns of the Fund (annualised)

1-Year2-Year3-Year5-YearSince Inception
82.27%26.25%17.25%17.52%16.35%
  1. Invesco India Multicap Fund
About the Fund

The fund aims to achieve long-term capital appreciation through investments in equity and equity-related securities of large, mid and small companies. The fund adopts a bottom up investment approach for stock selection across the market capitalization range.

Inception DateJanuary 01, 2013
Benchmark NameNifty 500 Multicap 50:25:25 Total Return Index
Fund ManagerAmit Nigam, Pranav Gokhale
Expense Ratio0.93%

Historical Returns of the Fund (annualised)

1-Year2-Year3-Year5-YearSince Inception
77.13%23.69%11.81%15.87%18.73%

Conclusion

High-risk funds must be carefully studied before making an investment. It is advisable for new investors to gain sufficient market knowledge before utilising high risk mutual fund investments to gain additional returns in their portfolio.

FAQs on High risk mutual funds

  1. What are the examples of high risk mutual funds?
    Some of the commonly known categories of high risk mutual funds could be Mid-cap funds, Small-cap funds & Multi-cap funds
  1. Do high risk mutual funds fetch high returns?
    High risk mutual funds primarily invest in equity and equity related instruments. Therefore, these may have higher chances of fetching returns during a market upswing. Similarly, these funds can also experience losses due to the risk of a market downturn. Hence, investors must not assume that high-risk funds will definitely generate high returns and must make an informed investment decision.
  1. How to invest in a high risk mutual fund?
    It is easy to invest in some of the top rated high risk mutual funds through the Finity app. This app allows investors to invest in mutual funds through their smartphones and by following a seamless investment process.
  1. Can new investors invest in high risk mutual funds?
    It is best for new investors to study the markets and especially equity investments before investing in high risk mutual funds. A basic knowledge of stocks can help investors to closely monitor a fund’s performance and make the right investment decisions.
  1. What are the benefits of investing in a high risk mutual fund?
    Some of the key benefits of investing in a high risk mutual fund are:
    Comparatively better chances of fetching higher returns through investments in mid-cap and small-cap companies. Multi-cap funds can enjoy the flexibility of switching investments to maximize profits.
    Market upswings may result in higher chances of generating gains through high-risk mutual fund investments
    Provides portfolio diversification for investors looking to balance the risk-return combination

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