- Summary
- The list includes Edelweiss Arbitrage Fund, Invesco Arbitrage Fund, TATA Arbitrage Fund, Mirae Asset Arbitrage Fund, Kotak Arbitrage Fund and Axis Arbitrage Fund, which use arbitrage strategies to target relatively stable, market-linked returns.
- HDFC Money Market Fund has the highest AUM among the funds listed at ₹33,191 crore as of August 2026, with a 0.22% direct-plan expense ratio.
- Low-risk mutual funds may have lower volatility than aggressive equity funds, but they are still market-linked investments and do not guarantee returns or capital protection.
Low-risk mutual funds are designed for investors who want relatively lower volatility while keeping their money invested in market-linked instruments. These funds may use strategies such as arbitrage, money-market investments, high-quality debt or multi-asset allocation. However, a lower risk rating does not mean that the investment is completely safe or that returns are guaranteed.
Best 10 Low Risk Mutual Funds: Quick Comparison
Below is a comparison of 10 relatively conservative mutual funds in terms of their recent performance, size of funds, costs, minimum SIP and risk ratings up to 9 September 2026. Most of these funds belong to the arbitrage category, except for one each of the money market fund, target maturity debt fund, and multi-asset fund. As these funds adopt different approaches, only comparing returns would be inappropriate.
| Fund name | Category/ Plan | 3 YR CAGR % | 5 YR CAGR % | Benchmark 5 yr Return % | AUM in ₹ crores | Expense Ratio % | Minimum SIP in ₹ | Risk |
| Edelweiss Arbitrage Fund | Direct Growth | 7.48 | 6.87 | 7.21 | 15,139 | 1.76 | 100 | Low risk |
| Invesco Arbitrage Fund | Direct Growth | 7.3 | 7.03 | – | 29,629 | 0.39 | 500 | Low risk |
| TATA Arbitrage Fund | Direct Growth | 7.55 | 6.83 | 7.23 | 24,950 | 1.71 | 150 | Low risk |
| Mirae Asset Arbitrage Fund | Direct Growth | 7.44 | 6.72 | – | 3,872 | 2.64 | 99 | Low risk |
| Nippon India Nifty AAA CPSE Bd PI SDL Apr27 Mat 60:40 Idx Fd Dir Fund | Direct Growth | 7.47 | – | 6.59 | 2,906 | 0.15 | 100 | Low risk |
| Aditya Birla Sun Life Arbitrage Fund | Direct Growth | 7.49 | 6.78 | 6.59 | 26,939 | 1.25 | 100 | Low risk |
| Kotak Arbitrage Fund | Direct Growth | 7.54 | 6.92 | 6.59 | 74,399 | 2.37 | 100 | Low risk |
| Axis Arbitrage Fund | Direct Growth | 7.42 | 6.8 | 6.54 | 10,339 | 1.44 | 100 | Low risk |
| Edelweiss Multi Asset Allocation Fund | Direct Growth | 7.6 | – | – | 2,943 | 0.8 | 100 | Low risk |
| HDFC Money Market Fund | Direct Growth | 7.38 | 6.63 | 6.66 | 33,191 | 0.22 | 100 | Low to Moderate |
Top 10 Low Risk Mutual Funds in India
The top 10 low-risk mutual funds in this list follow different strategies, including arbitrage, money-market, target-maturity debt and multi-asset allocation. The list includes Edelweiss Arbitrage Fund, TATA Arbitrage Fund, Kotak Arbitrage Fund, Axis Arbitrage Fund, HDFC Money Market Fund and Edelweiss Multi Asset Allocation Fund, among others.
1. Edelweiss Arbitrage Fund
Edelweiss Arbitrage Fund, which is not based on equity calls, operates based on arbitrage opportunities. The March 2026 factsheet indicated that the fund’s month-end AUM was ₹13,367 crore with an expense ratio of 0.39% for the direct plan and only an average maturity period of 0.45 years for its debt portfolio. The fund had exposure to stocks including HDFC Bank, ICICI Bank, Reliance Industries and JSW Steel among others.
The main limitation is that returns depend on the availability of attractive arbitrage spreads. When cash-futures spreads narrow, the fund may have less opportunity to generate higher returns. It also should not be treated like a bank deposit because its returns are market-linked.
2. Invesco Arbitrage Fund
The Invesco Arbitrage Fund seeks returns from the price differences existing in the cash market and the derivatives market. The arbitrage approach will be ideal for those seeking to invest in the short term and do not want to expose themselves to the risks of an equity fund.
The return potential is limited due to arbitrage possibilities within the market environment. As spreads become unattractive, the return can be expected to be quite low. It is therefore advisable that one does not benchmark it against risky equity funds.
3. TATA Arbitrage Fund
This Tata Arbitrage Fund has been operating for quite some time now since its inception in December 2018, and according to its official page, it has been rated as Low Risk. As of September 7, 2026, its AUM stood at ₹25,021 crore, whereas the expense ratio as of July 31, 2026, was 0.26%. The main idea behind this fund is that it seeks to arbitrage between cash and derivatives and not necessarily the equity market.
4. Mirae Asset Arbitrage Fund
The Mirae Asset Arbitrage Fund is characterised by the arbitrage approach, which aims at generating relatively stable gains based on price disparity between stocks and their derivatives. This strategy minimises the impact of stock market increases or decreases because of its structure, hence different from an equity fund.
5. Nippon India Nifty AAA CPSE Bd PI SDL Apr27 Mat 60:40 Idx Fd Dir Fund
It has a definite maturity of April 2027, and the index followed by this scheme is called the Nifty AAA CPSE Bond Plus SDL Apr 2027 60:40 Index. The benchmark consists of 60% AAA-rated CPSE bonds and 40% State Development Loans (SDLs), enabling the fund to have an excellent credit rating. According to Nippon India, the fund has relatively low credit risk. Its passive nature enables it to have a definite maturity pattern.
The most significant risk associated with the investment is interest rate risk, as classified by Nippon India to be relatively high. There is the possibility that the prices of bonds may fluctuate depending on changes in interest rates of the market, especially in the period before maturity of the fund.
6. Aditya Birla Sun Life Arbitrage Fund
The Aditya Birla Sun Life Arbitrage Fund primarily makes investments in equities and derivative equities and seeks to make profits from arbitrage between the cash market and the futures market. It is a low-volatility fund compared to other equity funds and has a low minimum SIP amount of only ₹100.
The fund’s performance depends on the spreads available between the cash and futures markets. If these spreads become narrow, there may be fewer profitable arbitrage opportunities. Consequently, investors should expect a return profile closer to a cash-management/low-volatility strategy than a wealth-creation equity fund.
7. Kotak Arbitrage Fund
Kotak Arbitrage Fund is one of the oldest mutual funds from the list, which has an allotment date of September 29, 2005. The AUM of this fund up to August 31, 2026, stood at a huge figure of ₹75,712 crore, whereas the direct plan expense ratio stood at 0.39%. The portfolio of May 2026 consisted of 73.13% of equity and equity-like instruments, which included ICICI Bank, HDFC Bank, Reliance Industries, Axis Bank and NTPC, which were accompanied by derivative contracts.
According to Kotak, the regular portfolio turnover was 1,700.89% up to August 31, 2026. This indicates the need for intensive trading to be able to take advantage of arbitrage spread. Low profit potential could also be observed because of arbitrage spread compression in the market.
8. Axis Arbitrage Fund
Axis Arbitrage Fund has been positioned as a short-term parking option by Axis and has been assigned to be a low-risk option. As of August 31, 2026, the AUM of the fund was ₹10,594 crore while the standard deviation of the portfolio was 0.53%, implying low past volatility. Furthermore, Axis has noted a modified duration of 0.43 years and Portfolio YTM of 6.92%.
9. Edelweiss Multi Asset Allocation Fund
The Edelweiss Multi Asset Allocation Fund has diversified its portfolio into equities, debts, commodities, and REITs/InvITs, thus having multiple sources of returns rather than depending on only one type of asset for the returns. For instance, in the November 2025 portfolio, Edelweiss Multi Asset Allocation Fund had 51.02% investments in debt and debt-related investments, 27.98% investments in equity arbitrage and 17.44% investments in commodity derivatives.
10. HDFC Money Market Fund
HDFC Money Market Fund is a debt fund scheme with an open-end structure investing in money market securities with a maturity not exceeding 1 year. The fund’s main objective is to ensure relatively high credit quality and control portfolio maturity based on the interest rate expectations. In June, 2026, the proportion of investments in AAA/AAA(SO)/A1+ and equivalent securities stood at 89.51%, whereas sovereign securities comprised 12.67% of the portfolio. The residual maturity and portfolio YTM were 207 days and 6.90%, respectively.
How We Selected These Low-Risk Funds
The low-risk funds are selected based on the given factors.
- Risk: Indicates the level of volatility and potential loss associated with the fund. We gave preference to funds with low-to-moderate risk ratings.
- Benchmark 5-Year Return: It indicates how the fund has performed relative to its benchmark for five years. A fund that has been outperforming its benchmark all along is performing better relative to its market.
- AUM: This is the amount of assets under management within the fund. The higher the AUM, the bigger the investment base.
- Expense Ratio: It shows the yearly fee charged by the fund for managing the investment. The lower the expense ratio, the lower the portion of the fund used for covering costs.
Low Risk Funds vs Other Fund Categories
The differences between low-risk funds and other funds are outlined below.
| Basis | Low Risk Funds | Debt Funds | Hybrid Funds |
| Investment Focus | Capital stability, lower volatility and liquidity | Income generation and investment in fixed-income securities | Balance between capital growth and income |
| Portfolio | May include arbitrage positions, money-market instruments, short-term debt or other relatively stable assets | Primarily government securities, corporate bonds, commercial paper, certificates of deposit and other fixed-income instruments | Combination of equity, debt and, in some schemes, other asset classes |
| Risk Level | Generally lower, but varies by strategy | Can range from low to high depending on credit quality and portfolio duration | Usually higher than conservative debt funds because of equity exposure |
| Suitable For | Investors who prioritise stability and relatively lower fluctuations | Investors seeking fixed-income exposure and potentially more stable returns | Investors seeking growth potential while diversifying between equity and debt |
Benefits and Risks of Low Risk Mutual Funds
The benefits of low-risk mutual funds are given below.
- Lower volatility: These funds have lower price movements than stock-based funds and are thus appropriate for individuals seeking stable returns.
- Appropriate for short-term goals: Money-market and arbitrage funds can be considered for relatively short investment horizons where investors do not want significant equity-market exposure.
- Liquidity: Many low-risk schemes allow investors to redeem their units when required, although some funds may impose an exit load for early withdrawals.
The risks associated with low-risk mutual funds are given below.
- Lower return potential: Because these funds take less risk, their long-term return potential is generally lower than that of equity and aggressive hybrid funds.
- Credit risk: Debt funds can be affected if an issuer faces financial difficulty, a rating downgrade or default.
- Strategy-specific risks: Arbitrage funds depend on the availability of profitable spreads, while money-market and debt funds remain exposed to changes in yields and credit conditions.
Who Should Consider and Avoid Low Risk Funds?
Low-risk mutual funds can be appropriate for those investors who seek returns linked to the performance of the stock market but do not wish to take the additional risks that come with equity mutual funds. Nonetheless, low-risk mutual funds are not appropriate for all kinds of investors.
Investors who should consider investing in low-risk funds are given below.
- Conservative investors: Those who prioritise capital stability and are uncomfortable with the large fluctuations seen in equity funds.
- Investing surplus cash: Those looking for a market-linked option for temporarily holding money can consider suitable money-market or arbitrage funds.
- Diversification: Those with substantial equity exposure can use relatively stable funds to reduce the overall portfolio volatility.
Investors who should not choose low-risk funds are given below.
- High-growth seekers: Investors who focus on aggressive long-term wealth creation may find the return potential of low-risk funds insufficient and may avoid these funds.
- Aggressive investors: Investors with a long-term investment horizon and high tolerance for market volatility may choose to avoid these funds and prefer equity-oriented funds for higher growth potential.
- Investors willing to take higher risk for higher returns: Investors with a high risk tolerance may find conservative funds too restrictive for their return objectives.
How to Choose a Low-Risk Mutual Fund
Low-risk fund offers have different portfolio structures. Therefore, investors should consider what each scheme holds, rather than just selecting the one that has been giving the best returns in recent times. This is because there may be various risks involved in investing in each of these funds. For instance, an investor considering Low Risk Large Cap versus Low Risk Large & Mid Cap has different mid-cap exposure risks.
- Riskometer: The risk of the scheme can be checked on the official website or the fund profile of the scheme. Investors have to choose those funds that are in line with their risk profile.
- Credit quality: Investors must examine the ratings of the securities held for debt-based funds. Higher exposure to AAA-rated and other high-quality securities can indicate stronger credit quality.
- Investment strategy: Check whether the fund invests in money-market instruments, high-quality debt, arbitrage positions or a mix of asset classes. The strategy determines the type of risks the fund carries.
- Match the fund with your investment horizon: Select a fund whose strategy and maturity profile are appropriate for the period for which you intend to remain invested.
SIP vs Lump Sum for Low Risk Funds
The difference between SIP and lump sum for Low Risk mutual funds is outlined below.
| Basis | SIP | Lump Sum |
| Meaning | Invest a fixed amount in a fund regularly, typically monthly. | Invest a large amount in the fund at one time. |
| Suitable for | Investors who earn regularly and want to build their investment over time. | Investors who already have a larger amount available to invest. |
| Amount | A smaller amount and increase it over time. | A larger amount to be available upfront. |
| Market Timing | Money is invested at different market levels, so the investments do not depend on one entry point | The return can be more affected by the market level when they invest. |
Direct vs Regular Low Risk Funds
The difference between direct and regular Low Risk funds is given below.
| Basis | Direct Low Risk Funds | Regular Low Risk Funds |
| Meaning | Invest directly in the Low Risk Mutual Fund scheme without a distributor. | Invest through a mutual fund distributor or intermediary. |
| Charges | Usually lower because no distributor commission is included. | Usually higher because the expense ratio includes distributor-related costs. |
| Suitable for | Investors who can research funds and manage their investments themselves. | Investors who want help from a distributor while selecting and managing funds. |
| Returns | Can achieve slightly better returns over time due to lower expenses. | Returns may be slightly lower due to the higher expense ratio. |
Taxation of Low Risk Mutual Funds
The taxation of Low Risk mutual funds depends on the type and holding period of the funds, according to the Income Tax Act, 2025.
For Equity Mutual Funds
- Short-term Capital Gain: If the investment is redeemed within less than one year or 12 months, it is considered short-term capital gains and is taxed at 20%.
- Long-Term Capital Gain: If the investment matures within 12 months, the gains are treated as long-term capital gains and are taxable at 12.5% on the total income from the investment, with a tax-free limit of ₹1.25 lakhs..
For Specified Mutual Funds
- For specified mutual funds, any capital gains arising from the redemption of debt mutual funds under specified funds are referred to as short-term capital gains, irrespective of their holding period and are taxed as per the applicable income tax slab. They are measured as per the Income-Tax Act, on or after 1st April 2023
IDCW/ Dividend Income
- IDCW or dividend received from a mutual fund is taxable under “Income from Other Sources” at the applicable rate. From tax year 2026-27, no deduction is allowed for interest expenditure against such dividend or mutual fund income under the amended Section 93(2).
Other Best Mutual Funds Categories
Investors can check other Stockgro blogs, including those on various mutual funds.
FAQs
Based on the 3-year CAGR as of 9 September 2026, the top five are Edelweiss Multi Asset Allocation Fund (7.60%), TATA Arbitrage Fund (7.55%), Kotak Arbitrage Fund (7.54%), Aditya Birla Sun Life Arbitrage Fund (7.49%) and Edelweiss Arbitrage Fund (7.48%). Past performance does not guarantee future returns.
Low-risk mutual funds may be considered by investors who prioritise relatively lower volatility and want market-linked returns. Whether they are suitable now depends on the investor’s financial goal, investment horizon, risk tolerance and the fund’s underlying strategy.
There is no single best low-risk mutual fund for every investor. Based on the 3-year CAGR in this comparison, Edelweiss Multi Asset Allocation Fund has the highest return at 7.60%. Investors should also consider risk, costs, portfolio composition and investment horizon before selecting a fund.
Check the fund’s riskometer, investment strategy, portfolio quality, 3-year and 5-year returns, benchmark performance, expense ratio and AUM. Also match the fund’s maturity and risk profile with your investment horizon.
These funds may suit conservative investors, investors looking to park surplus money and those who want to reduce volatility in an otherwise equity-heavy portfolio. The appropriate fund depends on the investor’s goal and time horizon.
Invesco India Arbitrage Fund is the best-performing low-risk fund in your list based on the 1-year return of 6.87%. It follows an arbitrage strategy that seeks to benefit from price differences between the cash and derivatives markets.
No. Low-risk mutual funds are not completely risk-free. Their returns are market-linked, and the underlying strategy may expose investors to arbitrage, interest-rate, credit, liquidity or other market risks.
The suitability of a low-risk fund depends more on the investor’s goal and investment horizon than on market timing. Investors should understand the fund’s strategy and risks before investing rather than choosing a scheme only because its recent returns are higher.
Bank FDs have a fixed interest rate, whereas low-risk mutual funds have variable returns that depend on market performance. Mutual funds have flexibility, but there will be differences in the taxation of each type of investment. They do not provide the same type of fixed returns as FDs.
