Best Low Risk Mutual Funds in India 2025 - A Guide
Identifying the appropriate investment to pursue to have peace of mind and stable returns is among the priorities of many Indians. To the majority, safety is virtually equal to growth. This is the reason why low risk mutual funds will remain the favourite of many even in 2025, particularly new investors, retirees, or any other person who wants to leave money safely. Here are the brightest options of the year, how these funds are operated, and the key advantages, disadvantages, and features that can make you make a wise choice.
What Are the Low Risk Mutual Fund and Why Would You Wish to have them?
Low risk mutual funds put their money primarily into debt instruments such as government securities, high quality corporate bonds and at least some short term papers which have non volatile and predictable returns. They seek to keep your capital intact and pay higher returns as compared to other savings accounts but at significantly reduced risk as compared to equity funds.
Key Features or Highlights
- Put capital security and stability first.
- Primarily invest in fixed income and highest rated debt.
- Reduced risk of loss even where markets become volatile.
- Liquidity is typically high; in the majority of cases can exit without a significant penalty.
- Perfect with people who are risk averse, retirees, emergency money parkers.
- Efficient tax-wise when held more than 3 years (indexation benefits of debt funds).
Expert Insight: Fact is, even in small ticket size investments, many digital banks in India are now directly providing access to the best performing low risk mutual funds?
What Kind of Low Risk Mutual Funds to Invest in by 2025?
In 2025, low risk typically pertains to some of the following categories according to the mutual fund classification of SEBI:
- Liquid Funds
- Ultra Short Duration Funds
- Overnight Funds
- Money Market Funds
- Banking and PSU Debt Funds
Let us divide them up so you can make a choice.
Take two 2025 broker-dealer-based liquid funds and then ask them to specify whether it is safe or not.
Liquid funds invest in very liquid and short-term securities, normally maturing in 91 days like treasury bills, commercial papers, and certificates of deposits.
Highlights
- Maturity up to 91 days hence very low interest rate risk.
- In 2025 with an average of 5.0-6.5 percent per year returns, it is a little higher than in savings accounts.
- Instant redemption up to 50000 rupee per day in various funds.
- Extremely low possibility of default or low returns.
Pros
- Young placements or emergency corpus.
- Redemption is easy, exit loads are low.
- Minimum effect of market fluctuations.
- Activities of corporates and HNIs on idle funds.
Cons
- In case there is a drastic decline in RBI policy rates, the returns may fall.
- Not the best long-term wealth making.
Comparison: 2025 Liquid Funds vs Savings Account
| Parameter | Liquid Fund (2025 avg) | Savings Account (2025 avg) |
|---|---|---|
| Estimated Payoff | 5 - 6.5 percent | 2.5 - 4 percent |
| Liquidity | High | High |
| Risk | Very Low | None |
| Tax Benefits | Yes (indexation after 3 years) | No |
People Also Ask:
Q. Am I 100 percent secure in liquid funds with my money?
A. There is never 100 percent riskfree investment in any market, but the liquid funds are said to be one of the safest after fixed deposits in India.
Ultra Short Duration Funds: Are Short Horizons Better?
These investments are in debt securities whose average maturities are three to six months. They have registered consistent returns without any significant price fluctuation in 2025.
Key Features or Highlights
- Duration; 3-6 months average maturity of portfolio.
- Payoffs: 6.25 percent/annum in 2023-2025.
- Very small returns in comparison to liquid funds with a bit more volatility.
Pros
- Fits perfectly the parking of money of a few months to one year.
- Less risky as compared to majority of other debt funds.
Cons
- Liquid funds have marginally higher interest rate sensitivity.
- There is the credit risk, but majority of the funds concentrate on AAA rated papers.
Did You Know? Some of the large AMCs can now offer the ability to view the scheme portfolio credit quality filter and duration at a glance.
Overnight Funds: Are they the Ultimate Safe Bet?
Only one-day securities are invested in overnight funds which are rolled over at a daily basis. This has rendered them almost resistant to interest rate and credit risk.
Key Features
- Only one day maturity instruments.
- Almost zero risk.
- A little low compared to liquid funds: 4.5-5.0 percent per year in 2025.
Pros
- Very convenient to keep the money away days or weeks.
- Institutions use it often as excess cash.
Cons
- The returns may be less by 1- 2 percent in comparison with fixed deposits.
- No good in terms of creating wealth.
People Also Ask:
Q. Are the overnight funds superior to putting money in a bank?
A. Overnight funds are often superior to bank savings account in terms of the returns they give on spare cash that might be required the following working day.
Money Market Funds: How Can they Be Secure With a little higher payoff?
Money market funds put money in money market instruments such as commercial papers, T-bills and repo. They also target maximum safety and may have a little more returns with the distribution of risk across a range of issuers.
Key Features or Highlights
- Maturity of up to one year.
- 2025 Payback: Approximately 6.25-6.75 percent/year.
- Less interest rate risk because of short maturities.
Pros
- Best used as medium term cash parking (not longer than 1 year).
- Trade off of safety and marginally increased yield.
Cons
- Minor risk in case some of the instruments fail, but not with reputed funds.
- Compared to liquid or overnight funds, May is a little bit costlier.
Expert Advice: Money market funds have turned out to be more resilient to sudden losses even in a volatile interest rate environment in India thus making money market funds to be a safe haven when it comes to conservative investors.
Banking and PSU Debt Funds: Are they different in 2025?
This money puts an emphasis on investing in high rated debts of the banks, government sector projects and government owned firms. They offer a safety net because of the select issuer profile and liquidity is usually high.
Key Features
- More than 80 percent portfolio in the banking/PSUs.
- Appropriate investment of 1-3 year horizon.
- Historical returns: 6.5-7.25 percent 2023-2025.
Pros
- The credit risk is not normally high as a result of high rating requirement.
- Minimal greater holdings tax efficiency.
Cons
- The returns can be reduced in case the interest rates drop suddenly.
- Not absolutely safe: as it has been seen before, there are occasional defaults among PSUs.
Table of Comparison: Best Low Risk Fund Categories in 2025
| Type of Fund | Mean (%) | Minimum Horizon | Riskiness | Where It Invests |
|---|---|---|---|---|
| Liquid Fund | 5.5 | 1 day | Very Low | T-bills, CP, CD |
| Ultra Short Duration | 6.25 | 3 months | Low | Debt, short term bonds |
| Overnight | 4.75 | 1 day | Lowest | Overnight repo |
| Money Market | 6.5 | 6 months | Low | Money market instruments |
| Banking and PSU Debt | 7 | 1-3 years | Low | PSU, bank, Govt bonds |
People Also Ask:
Q. Which mutual fund that is the low risk and has best record?
A. There are other top asset managers with select banking and PSU debt and money market funds that take the lead in average returns in low risk options in 2025.
Comparison of Low Risk mutual funds with Fixed deposits in 2025
Looking at 2025, the trend is clear. Fixed deposits provide guaranteed rates which might not compete with the best mutual fund classes in after tax returns, liquidity and flexibility.
Table- Mutual Funds vs Fixed Deposits
| Criteria | Low Risk mutual fund | Fixed deposits (Top Banks) |
|---|---|---|
| Normal Return (2025) | 5-7 percent | 5.3-6.5 percent |
| Liquidity | Very High | Fine on early exit |
| Taxation | Indexation benefit (after 3 years) | None |
| Minimum Investment | 500-1000 rupees | According to the bank regulations |
| Risk | Minimal but not nonexistent | None (to insured limit) |
Did You Know? Increasingly, more investors are dividing their emergency and short term savings into fixed deposits to secure the safety and liquid funds to provide additional flexibility.
Pre-Check Before Selecting a Low Risk Mutual Fund
Although these funds are said to be safe, you will secure these funds with a few checks:
- Examine the credit history over past 1 year. Avoid downgraded funds that are frequent.
- Choose those funds that are operated by a well known AMC that has a lengthy history of performance.
- Check expense ratio; the lower the better of debt funds.
- Get to know the exit load, whether any.
- Filter according to size of AUMs, performance during down markets, quality of portfolio.
Note: You should not follow high returns in the recent past, instead, you should find stable and consistent funds that have good reviews.
People Also Ask:
Q. What are some of the documents required to invest in a low risk fund in India?
A. According to the SEBI requirements, basic KYC documents will be required and include a. PAN, Aadhaar, and a bank account.
Advantages and Disadvantages: Rapidly Summarized Table
| Pros | Cons |
|---|---|
| Predictable and stable returns | Not entirely risk-free |
| Higher liquidity than FDs | Returns may fall in falling rate cycle |
| Efficient in short to medium terms | Can exit load very short stay |
| Tax benefits (above 3 years of ownership) | Not aggressive growth |
Best Low Risk Mutual Funds to 2025
Best funds vary yearly and rely on a number of rating agencies. Nevertheless, the following are some of the most continuously recommended in 2025 (on the basis of public data up to early 2025):
- Nippon India Liquid Fund
- ICICI Prudential money market fund
- HDFC Overnight Fund
- SBI Banking & PSU Debt Fund
- Axis Ultra Short Duration Fund
The low fluctuations in NAV, quality portfolios and safe management have been mentioned as some of the typical features of these funds. Nonetheless, they should never ignore the most recent reports and must always ensure that it is appropriate according to individual financial objectives.
Expert Insight: By 2025 with government guided financial literacy programs in India, there will be more confidence in debt fund selection amongst the urban and semi urban investor.
Who Are the Future Investors in Low Risk Mutual Funds?
- Professional Workers that require a substitute to savings accounts and are on a salary.
- Retired who seek liquidity as opposed to fixed deposits.
- Any others with short term goals that are less than 2 years.
- Surplus cash management businesses.
- Saving parents school fees or travel within 12 months.
The Investment of Low risk mutual funds online in India
- Open an account with any distributor of mutual funds registered by SEBI or with AMC.
- Full KYC through Aadhaar and PAN.
- Browse, compare and open a SIP or a lump sum using their app or site.
- Keep a check and change your choice with the evolving needs.
Quick Recap (TLDR)
Indian investors can get safe and stable returns in the year 2025 in low risk mutual funds that include liquid funds, ultra short duration funds, overnight funds, money market funds and banking PSU funds. It is suitable to all age groups who are seeking security, high liquidity and tax advantages. They have always been doing well as compared to savings account and in many cases, they perform better as compared to fixed deposits in short term. Select established funds, review the quality of the portfolio and match with your objectives.
People Also Ask
Q. Do low risk mutual funds ensure that they are risk free?
No. Any investments involve a risk. Nevertheless, such types of funds are some of the least risky particularly when they are selected carefully.
Q. How much is the minimum investment on low risk mutual funds?
The lowest schemes start at 500 to 1000 rupees per month.
Q. What is the speed of withdrawal of a liquid fund?
The funds will be in your bank in 1 business day in most instances. Other funds go as far as to provide instant redemption to specific amounts of money.
Q. What are the taxation of low risk mutual funds in 2025?
The capital gains of debt oriented funds are taxed. In the case of investment more than 3 years, indexation can be used to reduce your effective tax.
Q. Who is not to avoid low risk mutual funds?
The aggressive investors who are ambitious to get high growth rates should not because these funds will not increase wealth the same way equities do.
Sources
- Mutual Funds Categories Explained at SEBI.
- AMFI Indians Low Risk Funds List.
- Morningstar India Fund Reports.
- Valueresearch Online 2025 Debt Funds.
