Best Moderate Risk Mutual Funds

The salient features of the best moderate risk funds are discussed below - 

Types: These funds mainly refer to MIP funds, hybrid funds, dynamic bond funds, short-duration funds, and arbitrage funds.

Asset allocation: In dynamic bond funds, assets are allocated to long-term and short-term bonds based on the interest rate levels. On the other hand, dynamic asset allocation mutual funds park money in fixed income investments and stocks. Asset allocation is often changed based on prevailing market momentum. 

Risk-reward ratio: Moderate risk mutual funds invest in equity and debt instruments. This offers investors steady risk-adjusted returns. Alternatively, in case the funds generate negative returns, the resulting losses will be moderate to low. 

Investors must note that short duration and dynamic bond mutual funds are treated as debt funds and taxed accordingly. However, dynamic asset allocation mutual funds are given the same treatment as equity funds if the fund’s equity assets are at least 65% on a median basis. Note that when the fund’s equity assets are less than 65%, it is given a similar treatment as debt funds and taxed accordingly. 

Long-term Capital Gains Tax: Capital gains on short-duration funds and dynamic bond fund held for more than 3 years are subject to long-term capital gains tax at the rate of 20% with indexation. Conversely, proceeds on a fund with a higher concentration of equity instruments will attract 10% LTCG if held for more than 1 year. Note that LTCG on equity-based funds is exempt from tax up to Rs.1 lakh. 

Short-term Capital Gains Tax: Capital gains on dynamic bond funds and short duration funds held for less than three 3 years attracts short-term capital tax as per the investor’s tax slab. On the other hand, gains on equity-oriented schemes held for less than a year fetch a 15% tax irrespective of the amount. 

TDS: Fund managers are mandated to deduct a 10% TDS on the dividend pay-outs exceeding Rs.5000. 

Investors who plan to generate substantial returns without being exposed to intense risks often park their money into the best moderate risk mutual funds. These schemes are considered suitable for investors whose primary objective is to generate stable returns and diversify their investment portfolio. 

Risk-conscious investors must note that these funds involve some risks premised on their asset allocation. For instance, an equity-based fund is more vulnerable to market volatility. Conversely, a debt-oriented scheme can be susceptible to moderate levels of credit, inflation, and interest risks. 

It must be noted that these funds provide adequate returns over a medium to long-term time horizon.  

Nonetheless, investors must consider these few things before parking money in any top moderate risk mutual funds –

Investment goal: Investors may find it more convenient to identify their investment objective before buying units of a scheme. Typically, moderate risk mutual funds are considered more suited for mid-term financial goals. 

Risk profile: Recognising personal risk-taking capability makes the process of investing simpler in more than occasion. Measuring their risk-bearing capacity is essentially estimating the level of loss they can digest on their investments. In most cases, moderate risk mutual funds expose investors to credit and interest risks.

Past performance record: A fund’s performance record is a crucial point of research. Seasoned investors make it a point to find out things like AMC track record, investment style of the fund manager, and performance when compared to a benchmark to determine suitability.

Expense ratio: Generally, the expense ratio varies from one fund scheme to another. Essentially, it is the annual maintenance charge levied by an AMC. 

Time horizon: Best moderate risk mutual fund is considered suitable for a medium investment horizon of 3 - 5 years. 

Fact sheet: Investors often prefer checking credit ratings and the duration of underlying bonds in their choice of fund to make an informed decision.  

Direct and regular plan: Investors can invest in a moderate risk fund via a direct plan or a regular plan. In the case of the former, there are no intermediaries, and the fund houses offer the fund. Conversely, in the case of regular plans, investors can park money into the best moderate risk funds via a third-party agent, i.e., a broker or a distributor. A direct plan attracts a lower expense ratio when compared to a regular plan.

These are some of the major benefits of the best moderate risk funds 2023 –

Returns: These funds primarily invest in moderate risk instruments that generate stable returns. Since the portfolio comprises a mix of debt and equity instruments, investors can generate sustainable risk-adjusted earnings over a long time. 

Tax-efficient returns: When compared to fixed deposits, moderate risks funds are considered more tax-efficient. 

Financial goals: These funds come are mostly suited for an investment horizon of 3-5 years. Accordingly, investors with mid-term financial goals like saving up for a down payment, paying off unsecured debt, etc., invest in moderate-risk funds to achieve such goals. 

Safety quotient: The best moderate risk funds are considered safer than high-risk investments. The scope of diversification allows cushioning the impact of losses, thereby exposing investors to moderate losses. 

Investment mode: Investors have the flexibility to invest in moderate-risk funds via SIP or a lump sum as per their requirements and financial standing. Note the minimum investment amount depends on the fund scheme.