Moderate Risk Funds

Investors often do not consider and become aware of the risk they are taking while investing which becomes counterintuitive for their capital. As a measure, the Association of Mutual Funds in India (AMFI) have classified mutual fund risk exposures in varying degrees as high, moderately high, moderate, moderately low, and low. A moderate risk mutual fund is an investment vehicle that has medium levels of risk on investors’ capital as compared to a low risk mutual fund but not as riskier as a regular equity fund. The investments are broadly ventured into various financial instruments to ensure there is an average risk against inflation adjusted returns. Moderate risk mutual funds typically try to match inflation scenarios for optimal returns.

Moderate risk mutual funds, also known as balanced funds, aim to strike a balance between potential returns and risk. They typically invest in a mix of assets, such as stocks, bonds, and cash equivalents. The goal is to provide investors with a steady, moderate level of growth while minimising exposure to significant market volatility.

The fund manager allocates the portfolio’s assets based on their assessment of market conditions and the fund’s objectives. In times of economic stability, they may increase equity exposure for higher returns. Conversely, during market downturns, they may shift towards bonds or cash to reduce risk.

Investors choose moderate risk mutual funds for their relatively stable performance compared to pure equity funds. However, there’s still a degree of risk involved, and returns can fluctuate. It’s essential to assess your risk tolerance and investment goals before considering such funds.

A prominent feature as the name suggests is that a moderate risk mutual fund gives returns by venturing into financial instruments that result in an overall average risk for an investor’s capital.

Moderate risk mutual funds are mostly popular for their asset allocation feature where the fund manager diversifies the scheme portfolio across various sectors, segments and financial instruments to strike a balance of medium based returns and proportionate risk with the investment.

The asset allocation is mostly based on prevailing market momentum. And as part of asset allocation, the scheme could diversify investors’ capital into fixed income instruments too. For moderate risk mutual funds, the investment time duration is usually between 3 to 5 years. That said, an investor can stay with the scheme beyond this duration however it would deviate from the investment objective

Moderate risk mutual funds have certain few benefits that give them an edge over other market vehicles.

• Moderate risk mutual funds generate moderate returns without exposing investors to excessive risks.
• Generating stable returns is the primary objective of most medium risk mutual funds by investing in moderate risk instruments.
• Enables financial obligations as part of wealth creation over a time span of 3 to 5 years.
• It enables portfolio diversification, and asset allocation based on the type of fund for investors who are looking to balance out their overall portfolio risk.
• Moderate risk mutual funds aid with investing in a mix of equity and debt instruments to generate sizeable inflation-adjusted returns.

As the name suggests, a moderate risk mutual fund carries moderate risk in comparison with low risk mutual funds. Given the nature of investment and the instruments involved, moderate risk mutual funds typically generate substantiated returns for the investor. The risk also depends on whether the fund is an equity-oriented fund or dynamic fund or aggressive-hybrid fund. Among these, aggressive-hybrid funds are quite popular with retail investors

1. Investment Goals: Define your financial objectives and time horizon for investing in moderate-risk mutual funds. Are you saving for retirement, a major purchase, or wealth growth?
2. Risk Tolerance: Assess your risk tolerance carefully. Moderate-risk funds still carry some volatility. Ensure your comfort level with potential fluctuations.
3. Diversification: Choose funds that offer a diversified portfolio across various asset classes and sectors. This helps spread risk.
4. Expense Ratios: Lower expense ratios mean more of your returns stay in your pocket. Compare fees among funds.
5. Performance History: Analyse the fund’s past performance, considering both short-term and long-term returns, to gauge its consistency.
6. Fund Manager Expertise: Research the fund manager’s track record and investment strategy alignment with your goals.

Remember, while these factors are essential, past performance doesn’t guarantee future results. Diversification does not eliminate risk, and moderate-risk investments can still incur losses.

If you are an investor who is looking to invest in equity-based funds that fall under the medium risk bucket and do not have a huge pitfall on capital then you may choose to invest in a moderate risk mutual fund. Moderate risk mutual funds could be a good fit for those investors who are looking to invest for substantiated returns with moderate market risk.

Investors looking to park their money to yield average returns without being exposed to intense risk can opt for moderate risk mutual funds as part of their investment allocation. One caveat that needs to be noted is that the risk is predicated on the asset allocation of the fund.

Couple of factors to be considered for investors before investing in a moderate risk mutual fund:

1. Time Duration: Investors who are looking to park their money for a period of a slightly longer duration that ranges from 3 to 5 years can explore a moderate mutual fund as an investment option as it aids in achieving their financial goals that are slightly away in the future.
2. Investment Objective & Risk: Just like any other mutual fund, investors have to evaluate their investment portfolio and asset allocation percentages before opting for a moderate risk mutual fund and choose it only if it is in line with their financial need and time duration. As an investor, you should evaluate and understand your risk capabilities before making a decision.

The taxability of long duration mutual funds is based on the time duration of holding the fund. In the case of funds like short duration funds and dynamic bond funds, long term capital gains (LTCG) tax is applicable after the fund is held for more than 3 years at 20% with an indexation benefit whereas an equity-based fund would have an LTCG tax at 10% if held more than a year. One has to note that LTCG tax of up to ₹1 lakh is exempted from tax for equity-based funds.

Similarly, the short duration funds and dynamic bond funds would attract short term capital gains (STCG) tax if held for less than 3 years as per the investor’s income tax slab rate. Conversely, equity funds would attract 15% of short term capital gains tax if held for less than a year and there is no exemption for short term.

Dividends earned on moderate risk funds are added to the investor’s taxable income and taxed at the rate as per the income tax slab. There is also a 10% TDS on dividend amount exceeding ₹5,000 in a financial year.

Step 1: Start by logging in to your Angel One account using your registered mobile number. Validate the OTP and enter your MPIN.

Please note: If you do not currently have a Demat account with Angel One, you can swiftly open one by completing the necessary KYC procedure and submitting the required documents.

Step 2: Now, it’s time to select the most appropriate fund that aligns with your financial goals and moderate risk profile. Within the mutual fund section on the Angel One app, assess the following elements:

• Search for the specific fund you intend to invest in or refer to Angel One’s recommended funds across various categories.
• Analyse the fund’s historical performance, tax implications, sector allocations, and constituent stocks
• Calculate potential returns using the provided calculator.
• Evaluate the fund’s risk level, ensuring it matches your comfort zone regarding moderate risk investments.
• Take note of the fund’s ratings assigned by respected rating agencies, typically rated on a scale from 1 to 5.
• Consider the fund’s expense ratio to understand the cost associated with your investment.

Step 3: After finalising the fund(s) that suit your moderate-risk investment preferences, proceed to your Angel One account. Access the Mutual Funds section and locate your chosen fund. Since this may be a long-term investment, exercise due diligence during this selection phase. Consider the following:

• Decide whether you want to invest a lump sum or opt for a monthly SIP (Systematic Investment Plan).
• Specify the desired investment amount and choose your preferred payment method, with UPI being the recommended option. Alternatively, you can use net banking.
• If you have selected the SIP investment route, you can set up a mandate for effortless future instalments.

The above-mentioned top funds are for informational purposes only, and are not recommendations. The funds are based on 5-year CAGR, which is subject to change frequently. Check out real-time data on Angel One.

Aditya Birla Sun Life Medium Term Plan

This fund is being managed by Sunania daCunha since April 2017. As on March 31, 2023, the fund has an AUM of ₹1,652.35 crore and the minimum investment value is ₹1,000. The expense ratio of the fund is 0.86% under direct investment mode and there is no exit load if the fund is exited after 24 months from the date of allotment.

SBI Magnum Medium Duration Fund

This fund is being managed by Dinesh Ahuja since January 2011. As on March 31, 2023, the fund has an AUM of ₹7,087.94 crore and the minimum investment value is ₹5,000. The expense ratio of the fund is 0.69% under direct investment mode and there is no exit load if the fund is exited after 12 months from the date of allotment.

ICICI Prudential Medium Term Bond Fund

This fund is being managed by Manish Banthia since January 2018. As on March 31, 2023, the fund has an AUM of ₹6,305.63 crore and the minimum investment value is ₹5,000. The expense ratio of the fund is 0.77% under direct investment mode and has some exit load specifications.

Axis Strategic Bond Fund

This fund is being managed by Devang Shah since March 2012. As of March 31, 2023, the fund has an AUM of ₹1,644.39 crore where the minimum investment value is ₹5,000. The expense ratio of the fund stands at 0.39% under direct investment mode and has some exit load specifications.

HDFC Medium Term Debt Fund

This fund is being managed by Shobhit Mehrotra since September 2007. As of March 31, 2023, the fund has an AUM of ₹3,538.91 crore and the minimum investment value is ₹100. The expense ratio of the fund is 0.58% under direct investment mode and currently has no exit load.