Mutual funds are one of the most popular investments among investors of all ages. Easy to get started with small investments every month and the potential for high returns, it’s no wonder that mutual funds are emerging as the number one choice for investors. Mutual funds are classified based on their risk levels and the types of assets they invest in. 

Equity-oriented mutual funds invest in equities and equity-related instruments. Since, they invest primarily in market securities, the returns are dependent on market conditions. Hence, they are known as high risk mutual funds. Of all the types of equity mutual funds, small-cap and mid-cap equity funds are riskier compared to large-cap equity funds. 

Why invest in high risk mutual funds? 

One of the most famous sayings among investment professionals is – to earn high returns, one should be ready to take high risks. High risk mutual funds deliver superior returns, compared with other types of mutual funds.  

High risk mutual funds are ideal for aggressive investors, who are willing to expose their capital to high risks. Several high risk mutual funds in India are sectoral schemes, meaning all investments are made in a particular sector. This allows investors to invest in upcoming sectors like renewable energy that have high potential of risks as well as returns. 

Another benefit of high risk mutual funds is rupee cost averaging. When you invest in high risk mutual funds via SIP (Systematic Investment Plan), the risk exposure reduces due to rupee cost averaging. The idea behind rupee cost averaging is that when the market is high and the NAV value is high, your SIP investments acquire fewer fund units. On the other hand, when the market is low and the NAV is low, your SIP investments fetch more units.  

Who is it for? 

Mutual funds are ideal for:

  • Aggressive investors who can afford to take high risks. Young investors who have high risk appetites can go for high risk mutual funds to benefit from the high returns.

  • Suitable for young investors who have an investment horizon of 5 to 7 years or more. If you’re planning to retire soon or saving for an immediate goal, then high-risk mutual funds are not the right choice for you. You can opt for other conservative mutual funds like debt funds or low-risk equity funds. 

  • Individuals who do not take hasty decisions based on market fluctuations. When it comes to high risk mutual funds, you have to be patient. Investors should be able to ride turbulent economic conditions, without panicking. When it comes to high-risk mutual funds, though they may see short-term ups and downs, they have a higher potential of delivering significant returns in the long run. 

Best Performing High Risk Mutual Funds 

Here, we have compiled a list of top performing high-risk mutual funds. These schemes have the potential to deliver higher returns and offer long-term capital appreciation. However, note that these funds also come with high risks. 

S.No. Fund Name 5-Year Returns AUM (Fund Size)
1 Axis Midcap Fund 7.49% Rs. 5193 crores
2 Axis Small Cap Fund 7.92% Rs. 2507 crores
3 DSP Midcap Fund 6.76% Rs. 7458 crores
4 Franklin India Prima Fund 3.11% Rs. 7475 crores
5 HDFC Midcap Opportunities Fund 3.61% Rs. 22,755 crores
6 Invesco India Midcap Fund 5.73% Rs. 805 crores
7 Kotak Emerging Equity Fund 5.98% Rs. 6851 crores
8 L&T Midcap Fund 4.96% Rs. 6213 crores
9 Nippon India Growth 3.65% Rs. 7154 crores
10 Tata Midcap Growth Fund 3.25% Rs. 838 crores

*Data as on March 2020, from ETMoney 

Taxation of High Risk Mutual Funds 

High risk mutual funds are equity-oriented schemes and receive corresponding tax treatment. The gains derived from these funds for a period of lesser than 12 months are known as short-term capital gains and are taxed at 15%. Gains derived from these funds held for more than year is treated as long-term capital gains and are taxed at 10% if the gains are more than Rs. 1 lakh. 


Choose High Risk Mutual Funds to Earn High Returns

High risk mutual funds help investors build their wealth over the long-term. Make sure to check the pros and cons of high risk mutual funds and understand your risk taking capabilities to decide whether these funds are the right choice for your investment goals. If you are unsure of the risks involved, make sure to seek the professional guidance of a financial advisor before investing.