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Which Mutual Fund Is Suitable For You

ICICI Securities 9 Mins 24 Jun 2022
  • Mutual funds should be chosen according to the risk profile of the investor
  • Income and liquid funds can serve the needs of conservative investors
  • Semi-aggressive or moderate investors can choose hybrid funds
  • Aggressive investors should go for a combination of equity and sector funds

There is a plethora of mutual fund schemes in the market and all of them serve different needs of different sets of investors, according to their risk profile. Here is a list of funds that are suitable for investors with different risk profiles.

Conservative Investor

The prime objective of a conservative investor is to protect capital. For this additional safety, they may be willing to settle for modest returns. Therefore, their investment universe is likely to be restricted to debt funds. Here are the funds that they can consider.

Income fund for Returns: Typically, conservative investors put 70-80 per cent of their corpus in income funds and the balance in short-term funds. Since income funds invest primarily in corporate papers (highest-yielding papers in the market), they have the potential to yield the highest returns among debt funds in the long run. So, income funds serve the returns objective.

Remember that some income funds try to squeeze out greater returns by investing in low-rated papers (credit rating of ‘A’ and below). A conservative investor should avoid them, as the chances of a default are higher. A default will erode your portfolio value as well as your capital.

Liquid fund For liquidity: Liquidity should be provided for by investing in short-term funds like liquid funds and short-term plans. Because of their focus on shorter-tenure papers, short-term funds show greater stability in returns compared to, say, income funds.

Semi-Aggressive or Moderate Investor

The semi-aggressive investor seeks a mix of steady returns and capital appreciation, for which he is willing to take on moderate risks. Hence, though he maintains a bias towards debt in his portfolio, he diversifies into equity to boost his overall returns.

Debt and equity combination: For such investors, hybrid funds work well as they offer the best of both the worlds—equity and debt. Those who are willing to do asset allocation on their own can invest in debt funds and equity funds separately. For the debt component, a mix of long- and short-term debt funds can be considered. For the equity portion, they can stay near the lower end of the equity risk ladder and allocate between index funds and actively managed diversified large-cap funds. For a new investor, hybrid equity funds could be a better starting point.

Aggressive Investor

The aggressive investor desires market-beating returns and is, therefore, overweight on equity. They are more interested in high capital appreciation rather than steady returns.

Combination of equity funds: Among equity funds, a mix of conservative and aggressive schemes work for such investors. Under conservative schemes come diversified funds and index funds, which offer broad market exposures. Aggressive schemes, on the other hand, target a relatively narrower universe among stocks or follow an investment style that is inherently riskier. Among the current crop of schemes in the market, three categories stand out—small-cap, mid-cap and large-cap funds.

Sector funds, which invest in a particular sector, can also be used. The first three types of funds give a broad-based exposure, which makes them less risky than sector funds, which restrict themselves to just a particular sector. An aggressive investor can invest a part of his corpus in sector funds, but only if he understands the sector.


The most important thing is to know your risk appetite. If you know your risk appetite, it will help you select the funds according to your risk profile. If you are not sure about your risk profile and need help to make a decision, you may refer to Lifey from ICICI Securities or other websites that offer similar risk profiling tools.

Disclaimer: ICICI Securities Ltd.( I-Sec). Registered office of I-Sec is at ICICI Securities Ltd. - ICICI Venture House, Appasaheb Marathe Marg, Prabhadevi, Mumbai - 400025, India, Tel No : 022 - 2288 2460, 022 - 2288 2470.  AMFI Regn. No.: ARN-0845. We are distributors for Mutual funds and all disputes with respect to the distribution activity would not have access to Exchange investor redressal or Arbitration mechanism. The contents herein above shall not be considered as an invitation or persuasion to trade or invest.  I-Sec and affiliates accept no liabilities for any loss or damage of any kind arising out of any actions taken in reliance thereon.

Please note that Mutual Fund Investments are subject to market risks, read all scheme related documents carefully. I-Sec does not assure that the fund's objective will be achieved. Please note. NAV of the schemes may go up or down depending upon the factors and forces affecting the securities markets. Information mentioned herein is not necessarily indicative of future results and may not necessarily provide a basis for comparison with other investments. Investors should consult their financial advisers if in doubt about whether the product is suitable for them.

The client agrees and acknowledges that the LIFEY tool / facility provided by ICICI Securities are not intended to supply investment, financial, tax or legal advice. It is not investment advisory service and any observations concerning any security or investment advisory is not a recommendation to buy, sell or hold such investment or security or to make any other investment decisions. Client acknowledges and agree that any use of the services, any decisions made in reliance on the aforesaid services, including any trading or investment decisions or strategies, are made at your own risk. It is entirely client’s responsibility to assess the appropriateness, suitability, and practicality of the investment. The said services is just incidental to the distribution of mutual fund.

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