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Investing 101

10 Low-Risk Investment Plans

An investor's goal is to maximise profits on assets while minimising risk. They want to find the best investment plan where they can double their money in a few months or years with little or no risk. Unfortunately, there is no financial option that offers both high returns and little risk. There is a link between risk and reward. For example, bigger returns mean more risk, and vice versa. Low-risk investments provide investors with peace of mind since they are designed to avoid losses. Before deciding on an investment strategy, it is important to match your risk profile to the product's associated risks. In this article, we are going to take a look at 10 low-risk stock market investment options.

When Should You Choose Low-Risk Investments Over High-Risk Investments?

You may wish to consider low-risk investing if you meet any of the following criteria:

  • You have a portfolio full of risky investments and want to protect yourself.
  • When you have an emergency fund, you need a place to keep it.
  • You want to invest but are afraid of taking risks.

If you find yourself in any of the above scenarios, you can select one of the following alternatives.

1. Dividend paying stocks.

Dividends are regular financial payments made to shareholders by steady, profitable corporations. Investing in dividend-paying stocks might provide some degree of security in an otherwise volatile market. They can provide both fixed income and capital appreciation for investors.

Even if dividend-paying companies' share prices don't climb as rapidly or to the same heights as those of growth-stage firms, their dividends and stability make them attractive to investors. Choosing dividend-paying firms requires some caution, despite their low-risk nature.

Pros Cons
  • An investment that appreciates 30% over the next three years and yields a 3% dividend return is worth far more than the initial investment simply because it rises in value.
  • The right dividend stocks in your portfolio might give you a significant dividend income even when your portfolio's value is down in a volatile market.
  • Dividends can be reinvested to increase the value of an investment.
  • Due to the low volatility of large-cap stock prices, dividend stocks don't result in huge financial gains for investors.
  • Because large-cap companies are the most prevalent issuers of dividend-paying shares, dividend stocks can be pricey.
  • Dividends are not obligatory, and a corporation may decide to stop paying them at any point.
2. Index ETFs

The idea of Index ETFs is very simple. ETFs are portfolios (or a basket of stocks bonds or commodities) that mirror the composition of an index, like S&P CNX Nifty or BSE Sensex. An ETF can be traded on an exchange which makes it attractive to a large number of investors.

The net asset value of the underlying stocks or commodities that the ETF represents determines the current trading value. If you're looking for an easy way to diversify your portfolio through passive investing, without taking on too much risk, ETFs may be the answer.

Pros Cons
  • As an ETF investor, you are purchasing a portfolio of equities. This improves diversity by offsetting losses in a few equities with gains in others.
  • ETFs have lower cost ratios than actively managed mutual funds.
  • ETFs are transparent since their constituents are required to be disclosed by SEBI. So ETF investors always know where their money is invested.
  • Due to the limited number of stocks in the market index, investors may only be able to invest in large-cap stocks in certain sectors or businesses.
  • In India, with the exception of a few prominent ETFs, the vast majority of ETFs have extremely low trading activity.
3. Debt mutual funds

A debt fund is a type of mutual fund scheme that invests in fixed income instruments that provide capital appreciation, such as corporate and government bonds, corporate debt securities, and money market instruments, among other things. It's a smarter option that seeks to outperform fixed deposits in terms of return.

They provide higher yields and more tax advantages. The interest earned on bank fixed deposits is taxed as part of an individual's income, whereas capital gains on debt funds are taxed at the lower rates currently in effect.

Pros Cons
  • There is no lock-in period and debt funds can be redeemed at any time, subject to exit loads. Debt funds are liquid because they can be withdrawn at any time.
  • Ratings and ads published by corporations are just an indication of the fund's historical performance. Past performance is not a guarantee of future success for a particular fund, so investors should keep this in mind.
4. Hybrid mutual funds

Depending on the investment aim, hybrid funds may invest in stocks, debt, or other asset types. These funds invest in a variety of assets to diversify their portfolios and reduce risk. Some hybrid funds have a larger equity ratio, while others have a higher debt exposure. Hybrid funds can outperform debt funds while being less risky than equity funds.

Pros Cons
  • The fund management in a hybrid mutual keeps the asset allocation between debt and equity within a predetermined range at all times.
  • Hybrid funds can invest in stocks, debt, and other asset classes. Investors save time and money by not having to invest in each asset class separately.
  • Investors are exposed to extra risks when a fund has a lot of stocks in it during a bear market and a lot of debt in it during a bull market.
5. Unit linked insurance plans (ULIPs)

A ULIP is a type of insurance plan that combines investment and life insurance to safeguard your family financially in case of an unexpected event. The ULIP premium is split into two parts. Part of it goes to your insurance coverage, and the rest goes into the fund of your choice. The type of fund you invest in depends on your risk tolerance and investment objectives. ULIPs are therefore suitable low risk long-term investment options for you and your family.

Pros Cons
  • After the lock-in period, policyholders may make partial tax-free withdrawals of up to 20% of the policy's fund value.
  • ULIPs allow participants to switch investment funds when their objectives change. Switching between equity, debt, and cash can let policyholders profit from stock price fluctuations.
  • Administrative costs, mortality costs, and other fees are also part of the scheme's overall cost. This reduces your returns significantly.
  • ULIPs have a five-year lock-in period, during which no withdrawals are allowed.
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6. Money Market Funds

A money market fund is a type of mutual fund that invests in short-term, highly liquid assets. Cash, cash equivalents, and short-term debt securities with excellent credit ratings are some examples of these instruments. The goal of money market funds is to provide investors with a high level of liquidity while also reducing their exposure to risk.

Pros Cons
  • A great place to invest when the stock market is turbulent and investors are unsure where to put their money.
  • Using money market funds, you may direct your investment into an equity fund or hybrid fund through a systematic transfer plan (STP).
  • With inflation running at 5%, an investor who earns a 4% return on his or her money market account is effectively losing buying power year after year.
7. Gilt funds

In a gilt fund, investors put their money into the government's bonds. In the past, the government issued bonds in the form of certificates with golden edges. The term "gilt" comes from the gilded edges of certificates that were given out. In accordance with SEBI guidelines, gilt funds are required to hold at least 80% of their capital in government bonds.

Gilt funds have a reputation for delivering moderate returns with little to no risk. People with short-to medium-term goals might benefit from investing in these funds.

Pros Cons
  • Tax-free bonds allow you to save money on taxes while receiving a fixed income in the form of interest
  • Because your money is invested with the government, it is safe.
  • It will outperform fixed deposits.
  • Compared to other investments such as stock, the return on investment is quite low.
  • The main risk with gilt funds is rate fluctuation. If the RBI raises the repo rate, the returns will decline.
8. National Pension System (NPS)

The government of India formulated the National Pension System (NPS) as a retirement benefit program to provide a steady income to all subscribers after retirement. An independent agency called PFRDA (Pension Fund Regulatory and Development Authority) is in charge of overseeing NPS's operations.

Everyone should plan for their retirement. You need to save enough for your golden years when you won't be able to work full-time and make money. It will benefit you when you retire and receive a monthly pension (income).

Section 80C and Section 80CCD of the Income Tax Act allow you to claim a deduction of 1,50,000 rupees and an extra benefit of 50,000 rupees. Anyone with a low-risk appetite and an expectation of retiring comfortably should invest in NPS. Apart from government employees, private-sector employees who want a steady pension after retirement should choose this option.

Pros Cons
  • Individuals, employees, and employers all benefit from tax benefits.
  • Market-linked returns that are desirable.
  • Conveniently portable (in case you are changing jobs),
  • Professionally run by people who know how to run pension funds.
  • Regulated by the PFRDA, which was set up by an act of Parliament to make sure things were safe.
  • Returns from the NPS are not assured, even though it is a government initiative.
  • Tier-1 accounts are locked (withdrawals are permitted with severe restrictions) until the account holder reaches the age of 60.
  • The NPS corpus, which the subscriber can use to buy annuities or draw pensions, is taxable. 60% of NPS investments are taxed by the Indian government, whereas 40% are not.
9. Gold BeES

Gold BeES is an open-ended exchange-traded fund (ETF) that provides a one-of-a-kind investment opportunity for those interested in gold. Before expenditures are taken into account, investments in the Gold Benchmark Exchange Traded Scheme (Gold BeES) aim to offer returns that are roughly identical to the domestic gold price returns on physical gold.

Due to the fact that these are ETFs, they may be traded on the stock exchange. Gold is seen as a valuable hedge against inflation.

Pros Cons
  • Perfect for people who want to invest in gold rather than use it for personal purposes.
  • Because these units are in demat form, there is no risk of theft and no need to worry about storage costs (as with actual gold).
  • Investing in gold ETFs also offers price transparency. Its purchase price is probably the closest to gold's real value, so it is used as a guide.
  • Gold ETFs' benefits come at a cost. The fund house charges a small asset management fee, so the return is somewhat less than the real growth in the gold price.
  • Brokerage or commission fees are added to the purchase or sale price.
10. REIT

A real estate investment trust (REIT) is a kind of corporation that owns, operates, or funds income-producing real estate assets. REITs are like mutual funds in that they pool the money of many people. REITs can be listed on a stock market like any other security, and its units can be traded on the stock exchange.

Pros Cons
  • REITs must distribute 90% of their earnings as dividends. This is the main reason investors buy REITs.
  • You don't have to deal with the costs and headaches of real estate investing to own a piece of property.
  • REITs possess physical assets that can rise in value over time.
  • REITs are more liquid than traditional real estate investments.
  • Falling real estate values might cause a reduction in stock prices.
  • REITs are particularly susceptible to interest rate movements. The price of REIT stocks may decline as interest rates rise.
  • REITs payout up to 90% of earnings to investors and reinvest just 10%. The need to maximize REIT payouts drives management to borrow to grow real estate assets.


These investment options include both fixed-income and market-linked assets. Maintain a well-balanced portfolio by considering factors like return, risk, and taxation. Market-linked investments have great potential for profits, but also carry substantial risks. Fixed-income investments assist in preserving the capital that has been earned so that the intended aim may be achieved. Long-term objectives of wealth creation require combining the best of both.