An investment in a mutual fund carries a moderate level of risk. The risks associated with some funds, however, are higher than those associated with others. The returns potential of these funds is also very high. It is important to know which funds are the best bet for your investor’s profile if you want to earn higher returns.
It is common for these funds to be highly volatile, but at the same time, they often pay high dividends to their investors. A fund like this is perfect for investors who are capable of taking more risks in order to generate higher returns. To ensure they continue performing in accordance with your financial goals, remember to check the fund’s performance periodically.
High-risk mutual funds features
This type of fund carries a high level of risk, but promises high returns. Thus, these funds are suitable for investors who have a high risk appetite and are willing to invest in risky assets. Investing in stocks of companies with high growth potential can help high-risk mutual funds beat the market with market-beating returns. The dividends on these shares are also higher. Due to their earning potential under the right market conditions, these high-risk mutual funds are used by investors as a means of diversifying their portfolios.
Investors can invest in sectors expected to grow at a faster rate through several high-risk mutual fund schemes. It is also possible for investors to invest in new markets or upcoming sectors, such as e-commerce or the renewable energy sector, through these funds.
There is no need for investors to invest in these funds if they are risk-averse and concerned about the protection of their initial investment. These funds allow investors to invest in companies at the beginning of their growth trajectory. They are also susceptible to market fluctuations, which can seriously affect your return on investment, as these are not stable like the large corporations.
Taxation on high-risk funds
Mutual fund investors are subject to capital gains tax on the gains they make from their investments in mutual funds. Because high-risk mutual funds invest in equity funds, therefore, the capital gain earned on the sale of these funds is subject to capital gain taxation. There is a 15 percent short-term capital gains tax that applies to capital gains that are accumulated within a period of less than twelve months. Assuming that the investment period is longer than twelve months, the applied tax rate on capital gains over Rs 1 lakh will be 10 percent.
Significant advantages of high-risk funds
There are many advantages to investing in high-risk funds, but the most important one is that the probability of higher returns is high. It has been shown that the best high-risk mutual funds offer superior returns than any other investment scheme, making high-risk funds attractive to investors who are more aggressive than most. The purpose of these funds is to allow investors to create wealth over the long run by investing in them.
Secondly, the funds invest in companies that are growing rapidly, which means that they are very profitable. Therefore, these companies are able to pay higher dividends to their shareholders as a result. An investor’s mutual fund manager is responsible for selecting mutual funds that have a higher chance of growing and will produce superior returns as compared to others.
Who should invest in high-risk mutual funds?
Investing in these funds is suitable only for investors who are comfortable with high risks. The funds are typically invested in by experienced investors for the purpose of generating higher returns. Investing in a high-risk mutual fund is a risky proposition, so you should be sure to keep track of the performance of your portfolio closely and make timely withdrawal decisions if your portfolio is performing poorly.
The type of funds listed above would not be appropriate for new investors, risk-averse individuals, or retired individuals who are concerned about protecting their initial investment corpus. Funds that are considered high-risk are a good choice for young investors with a very long investment horizon, because they generate returns over the long run, whereas lower-risk funds do not. There is no doubt that most of these mutual fund schemes are not suitable to fund short-term goals when looking at the long term.
The bottom line
High-risk mutual funds, just like any other mutual fund investment, also have some pros and cons that need to be considered. The purpose of these funds is to provide their investors with a place to invest over a longer period of time. In order to make sure you choose the best high-risk, high-return mutual funds for your specific requirements, you should thoroughly research the market before investing in such funds.