Best Low-Risk Mutual Funds

Top 10 Low-Risk Mutual Fund Schemes

Below are the top 10 low-risk mutual funds of 2025:

*Returns for the Best Low-Risk Mutual Fund as of November 2025

1. Invesco India Arbitrage Fund Direct Growth

   Arbitrage funds exploit the temporary price difference of the same stock between the cash market and the derivatives market. They simultaneously buy the stock in one market and sell it in the other.

   Parameters	Details
   Fund Name	Invesco India Arbitrage Fund Direct-Growth
   NAV	₹ 35.48 (as on 11th December, 2025)
   AUM	₹24,204.72 Crs
   Expense Ratio	0.39%
   Return 5 Years	6.56%
   Minimum Investment	SIP ₹1000 & Lumpsum ₹1,000
   Risk Level	Principal at low risk
   Launch Date	NA
   Asset Allocation	Equity: -0.45%, Debt: 20.74%, Others: 79.62%
   Top Sectors	NA
   Top Holdings	Net Receivables Invesco India Liquid Fund Direct-Growth Invesco India Credit Opportunities Fund Direct-Growth ICICI Bank Ltd Repo Reliance Industries Ltd HDFC Bank Ltd Zomato Ltd Tata Consultancy Services Ltd Axis Bank Ltd
   Fund Managers	Manish Kalani Deepak Gupta
   Fund Type	Open-ended

2. ICICI Prudential Equity Arbitrage Direct Growth

   An equity arbitrage scheme that takes hedged equity positions to deliver stable, low-risk returns. Ideal for parking short-term surplus with relatively steady growth.

   Parameters	Details
   Fund Name	ICICI Prudential Equity Arbitrage Direct-Growth
   NAV	₹ 37.79 (as on 11th December, 2025)
   AUM	₹31,526.24 Crs
   Expense Ratio	0.4%
   Return 5 Years	6.3%
   Minimum Investment	SIP ₹1000 & Lumpsum ₹5,000
   Risk Level	Principal at low risk
   Launch Date	NA
   Asset Allocation	Equity: -0.16%, Debt: 19.06%, Others: 81.1%
   Top Sectors	NA
   Top Holdings	Cash Margin ICICI Prudential Money Market Direct-Growth HDFC Bank Ltd Reliance Industries Ltd Bharti Airtel Ltd Repo Mahindra & Mahindra Ltd Tata Consultancy Services Ltd Zomato Ltd ITC Ltd
   Fund Managers	Archana Nair Kayzad Eghlim Nikhil Kabra Sharmila D'Silva Ajay Kumar Solanki Darshil Dedhia
   Fund Type	Open-ended

3. Bank of India Overnight Fund Direct Growth

   A debt scheme investing in overnight securities with one-day maturity. Extremely low risk and ideal for very short-term parking of cash.

   Parameters	Details
   Fund Name	Bank of India Overnight Fund Direct-Growth
   NAV	₹ 1,346.74 (as on 11th December, 2025)
   AUM	₹83.84 Crs
   Expense Ratio	0.08%
   Return 5 Years	5.4%
   Minimum Investment	SIP ₹1000 & Lumpsum ₹5,000
   Risk Level	Principal at low risk
   Launch Date	28th January, 2020
   Asset Allocation	Others: 100%
   Top Sectors	NA
   Top Holdings	Repo Net Receivables
   Fund Managers	NA
   Fund Type	Open-ended

4. Kotak Arbitrage Fund Direct Growth

   A popular arbitrage scheme that uses cash–futures spreads to generate moderate but consistent returns. Best suited for low-risk investors and short-term goals.

   Parameters	Details
   Fund Name	Kotak Arbitrage Fund Direct-Growth
   NAV	₹ 41.14 (as on 11th December, 2025)
   AUM	₹71,608.20 Crs
   Expense Ratio	0.44%
   Return 5 Years	6.51%
   Minimum Investment	SIP ₹1000 & Lumpsum ₹100
   Risk Level	Principal at low risk
   Launch Date	NA
   Asset Allocation	Equity: -0.84%, Debt: 18.56%, Others: 82.24%
   Top Sectors	Consumer Discretionary Industrials Real Estate
   Top Holdings	Cash Margin Kotak Money Market Fund Direct-Growth Kotak Treasury Advantage Fund Direct-Growth HDFC Bank Ltd Reliance Industries Ltd ICICI Bank Ltd Axis Bank Ltd Net Current Assets Zomato Ltd Repo
   Fund Managers	NA
   Fund Type	Open-ended

5. Tata Arbitrage Fund Direct Growth

   A low-volatility arbitrage fund focusing on hedged equity opportunities to deliver predictable returns. Suitable for investors preferring safety with equity-like tax benefits.

   Parameters	Details
   Fund Name	Tata Arbitrage Fund Direct - Growth
   NAV	₹ 15.53 (as on 11th December, 2025)
   AUM	₹17,291.12 Crs
   Expense Ratio	0.32%
   Return 5 Years	6.46%
   Minimum Investment	SIP ₹1000 & Lumpsum ₹5,000
   Risk Level	Principal at low risk
   Launch Date	18th December, 2018
   Asset Allocation	Equity: -0.78%, Debt: 21.41%, Others: 79.37%
   Top Sectors	Consumer Discretionary Industrials Financial Materials
   Top Holdings	Cash Margin Tata Liquid Fund Direct-Growth HDFC Bank Ltd Reliance Industries Ltd ICICI Bank Ltd Repo Zomato Ltd Axis Bank Ltd ITC Ltd Tata Consultancy Services Ltd
   Fund Managers	NA
   Fund Type	Open-ended

6. Aditya Birla Sun Life Arbitrage Fund Direct Growth

   This fund capitalises on market inefficiencies through arbitrage strategies, keeping equity exposure fully hedged. Designed for conservative investors needing stability.

   Parameters	Details
   Fund Name	Aditya Birla Sun Life Arbitrage Fund Direct-Growth
   NAV	₹ 29.46 (as on 11th December, 2025)
   AUM	₹22,310.32 Crs
   Expense Ratio	0.31%
   Return 5 Years	6.38%
   Minimum Investment	SIP ₹1000 & Lumpsum ₹1,000
   Risk Level	Principal at low risk
   Launch Date	NA
   Asset Allocation	Equity: 0.5%, Debt: 19.29%, Others: 80.21%
   Top Sectors	NA
   Top Holdings	Cash Margin Birla Sun Life Floating Rate Short-term Direct-Growth Birla Sun Life Floating Rate Long-term Direct Fund-Growth Reliance Industries Ltd HDFC Bank Ltd ICICI Bank Ltd Reverse Repo Axis Bank Ltd Zomato Ltd Mahindra & Mahindra Ltd
   Fund Managers	Lovelish Solanki Mohit Sharma
   Fund Type	Open-ended

7. SBI Arbitrage Opportunities Fund Direct Growth

   A low-risk arbitrage fund that neutralises market exposure with offsetting futures contracts. Works well for short-term investments with low volatility.

   Parameters	Details
   Fund Name	SBI Arbitrage Opportunities Fund Direct-Growth
   NAV	₹ 36.93 (as on 11th December, 2025)
   AUM	₹39,824.16 Crs
   Expense Ratio	0.41%
   Return 5 Years	6.37%
   Minimum Investment	SIP ₹1000 & Lumpsum ₹5,000
   Risk Level	Principal at low risk
   Launch Date	NA
   Asset Allocation	Equity: -1.51%, Debt: 22.72%, Others: 78.79%
   Top Sectors	Consumer Discretionary Consumer Staples Energy & Utilities Materials
   Top Holdings	Cash Margin SBI Savings Fund Direct-Growth HDFC Bank Ltd ICICI Bank Ltd SBI Premier Liquid Direct Plan-Growth Repo Axis Bank Ltd Reliance Industries Ltd State Bank of India SBI Ultra Short Term Debt Direct Plan-Growth
   Fund Managers	Neeraj Kumar Ardhendu Bhattacharya Pradeep Kesavan
   Fund Type	Open-ended

8. Bandhan Arbitrage Fund Direct Growth

   This fund employs arbitrage and hedged equity positions to offer stable, consistent returns. Suitable for short-term parking of funds with minimal risk.

   Parameters	Details
   Fund Name	Bandhan Arbitrage Fund Direct-Growth
   NAV	₹ 36.06 (as on 11th December, 2025)
   AUM	₹8,879.74 Crs
   Expense Ratio	0.35%
   Return 5 Years	6.32%
   Minimum Investment	SIP ₹1000 & Lumpsum ₹100
   Risk Level	Principal at low risk
   Launch Date	NA
   Asset Allocation	Equity: -0.5%, Debt: 23.31%, Others: 77.2%
   Top Sectors	NA
   Top Holdings	Cash Margin Bandhan Money Market Fund Direct-Growth Bandhan Low Duration Fund Direct-Growth HDFC Bank Ltd Reliance Industries Ltd ICICI Bank Ltd Reverse Repo Bandhan Ultra Short Duration Fund Direct-Growth Vodafone Idea Ltd NATIONAL BANK FOR AGRICULTURE AND RURAL DEVELOPMENT SR 23A 7.40 BD 30JN26 FVRS10LAC
   Fund Managers	Brijesh Shah Harshal Joshi Kapil Kankonkar Ritika Behera Gaurav Satra
   Fund Type	Open-ended

9. Quant Overnight Fund Direct Growth

   A highly liquid overnight debt fund investing only in one-day maturity instruments. Best for safe parking of surplus funds with negligible interest-rate risk.

   Parameters	Details
   Fund Name	Quant Overnight Fund Direct - Growth
   NAV	₹ 12.13 (as on 11th December, 2025)
   AUM	₹91.77 Crs
   Expense Ratio	0.14%
   Return 5 Years	N/A
   Minimum Investment	SIP ₹1000 & Lumpsum ₹5,000
   Risk Level	Principal at low risk
   Launch Date	5th December, 2022
   Asset Allocation	Others: 100%
   Top Sectors	NA
   Top Holdings	Repo Net Current Assets Net Payables
   Fund Managers	Sanjeev Sharma Harshvardhan Bharatia
   Fund Type	Open-ended

10. Mirae Asset Arbitrage Fund Regular - Growth

    A hedged equity-arbitrage fund aiming to generate steady returns from cash–futures spreads. Suitable for conservative investors seeking low volatility with equity taxation.

    Parameters	Details
    Fund Name	Mirae Asset Arbitrage Fund Regular - Growth
    NAV	₹ 13.34 (as on 11th December, 2025)
    AUM	₹2,998.23 Crs
    Expense Ratio	0.93%
    Return 5 Years	5.53%
    Minimum Investment	SIP ₹1000 & Lumpsum ₹5,000
    Risk Level	Principal at low risk
    Launch Date	19th June, 2020
    Asset Allocation	Equity: -0.32%, Debt: 11.8%, Others: 88.51%
    Top Sectors	NA
    Top Holdings	Cash Margin Net Receivables Mirae Asset Liquid Fund Direct- Growth Repo Mirae Asset Money Market Fund Direct - Growth UPL Ltd Muthoot Finance Ltd Kalyan Jewellers India Ltd Maruti Suzuki India Ltd RBL Bank Ltd
    Fund Managers	Amit Modani Jignesh N. Rao Jigar Shethia
    Fund Type	Open-ended

Points to Remember Before Investing in a Low-Risk Mutual Fund

Some points you should keep in mind while going for the Low-risk mutual funds. Read the content below to understand better:

1. Investment Goal:

   Align your investment with clear financial objectives. This helps determine how much to invest and the duration for which you should stay invested.

2. Risk Appetite

   While these funds carry minimal interest-rate or credit risk, inflation can still erode returns. Assess how much fluctuation or lower-than-expected gains you’re comfortable with.

3. Past Performance

   Review the fund’s performance over the past three years and compare it with its benchmark. Also, check the expense ratio to understand the cost of managing the fund.

4. Credit Quality

   Go through the fund’s fact sheet to understand the credit rating and maturity profile of the bonds in the portfolio.

Major Advantages of Low-Risk Mutual Funds 

The best low-risk mutual funds provide these benefits in 2025:

1. Ideal for Short-Term Goals

   Low-risk mutual funds have a shorter tenure, which is perfect for meeting financial goals, such as small purchases or emergency needs.

2. Regular Income

   They can provide a steady supplementary income along with capital protection. This makes them suitable for investors who want predictable earnings without taking high risk.

3. Minimal Risk

   These funds carry very low credit and interest-rate risk. While inflation may slightly affect returns, the overall risk remains limited.

   • Better Returns Than FDs: 

   Low-risk mutual funds are likely to offer FD-like safety with the potential for higher returns. Better liquidity, allowing quick access to your money whenever needed.

4. Tax Efficiency

   Investors in higher tax brackets may save more tax compared to FDs, especially through long-term capital gains with indexation benefits.

Who Are Low-Risk Mutual Funds Suited For?

Low-risk mutual funds are ideal for new investors with limited market knowledge and a low risk appetite.

1. Conservative Investors:

   Individuals who prefer to avoid market volatility and want a stable investment avenue with minimal risk for better retirement planning.

2. First-Time Investors:

   Those who lack extensive market knowledge and want to start investing with a low-risk, high-return mutual fund to build confidence.

3. Short-Term Investors:

   Low-risk mutual funds are suitable for investors with a short-term horizon, typically less than a year or from 1 year to 3 years, making them useful for achieving near-term financial goals.

4. Retirees:

   Ideal for retirees seeking to preserve their savings while generating regular income without exposure to high market risks.

5. Tax Savers:

   Individuals in higher tax brackets are looking for tax-saving investment options that offer both capital safety and tax benefits.

6. Emergency Fund Builders:

   Investors who want to maintain liquidity and quick access to funds while earning better returns than a savings account.

Tax Deducted at Source (TDS) on Mutual Funds

The rules for TDS on mutual fund returns depend entirely on the nature of the income, whether it is a capital gain or an income distribution.

1. On Capital Gains (Sale/Redemption)

   • For Resident Investors: The Asset Management Company (AMC) is not required to deduct TDS on the capital gains when you redeem them.
   • Investor Responsibility: The responsibility of calculating and paying the applicable tax (STCG at slab rate) on the gain lies entirely with the investor, who must report it correctly when filing their Income Tax Return (ITR).

2. On IDCW (Income Distribution cum Capital Withdrawal / Dividend)

   • Applicability: TDS is deducted when an investor opts for the IDCW option in a mutual fund scheme.
   • Threshold: The AMC is required to deduct TDS if the total IDCW/dividend amount paid to a resident investor exceeds ₹5,000 in a financial year.
   • TDS Rate: The standard TDS rate is 10% (if the PAN is provided).

Note for resident investors: You do not face TDS when you redeem your low-risk fund for a profit, but you will likely face TDS if you opt for the IDCW/Dividend option and the payout is high.

Why Choose the Best Low-Risk Mutual Funds?

Low-risk mutual funds have many benefits, and why you should invest in them.

• They provide the best investment plan for conservative investors who prioritize safety over aggressive growth.
• Suitable for retirees, first-time investors, or anyone seeking to balance risk and return.
• They offer an alternative to traditional fixed deposits with potentially better post-tax returns and greater liquidity.

Wrapping Up

Low-risk mutual funds offer a reliable blend of safety, liquidity, and steady returns, making them a strong choice for first-time investors. With their ability to preserve capital while delivering better flexibility and tax efficiency than traditional FD, they are an excellent option for short-term goals, emergency planning, and with a stable income. Choosing the right low-risk fund helps you protect your wealth while ensuring consistent, worry-free growth.