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What is a Zero Risk Debt Mutual Fund Scheme?

Chaitali Mehendale Chaitali Mehendale 26 June 2019

The market fluctuations hugely impact the investment appetite of the ultra-conservative investors who are now in constant search of zero-risk debt mutual fund scheme that offers risk free returns.

Zero risk debt mutual fund scheme

Mutual fund is one of the most sought after investment instruments that offers great opportunity to the investors to invest their money in the mutual fund scheme as per their risk appetite. Mutual fund schemes offer great opportunity to the investors for generating income by collecting money from them and investing the collected corpus in stocks and shares of various companies.

Mutual fund schemes differ as per the risk-taking appetite of the investors and the market is flooded with different mutual fund schemes like the Equity mutual fund scheme, debt mutual fund scheme, balanced mutual fund scheme etc. For ultra-conservative and sensitive investors debt mutual fund scheme is most suitable as this mutual fund scheme strives to minimize the risk associated with market fluctuation by investing the corpus in least risky investment instruments like government bonds and securities, treasury bills, commercial papers, corporate bonds etc.

Debt mutual fund scheme is different from equity or balanced mutual fund scheme for two reasons:

  • Investing in debt fund scheme reduces the risk factor, and
  • The chances of earning exponential returns are minimal in Debt mutual fund scheme

Thus, the above two reasons suggest us that debt mutual fund scheme are a safe investment instrument and suitable for investors who are looking for fixed interest or income generating avenues. Also, with the recent market tribulations, most of the sensitive investors are worried about their investments and are seeking risk-free mutual fund scheme.

Are there any zero-risk debt mutual fund schemes in the market?

As many investors are searching for risk free investment instruments but the truth about debt mutual fund schemes is that every scheme has certain risk factor attached to it even though it is investing in debt instruments. Whether liquid mutual fund schemes or short-term debt fund scheme, many trade pundits are of the opinion that the perception of zero-risk or risk-free investment is completely as per the investors’ perception about risk.

The fund managers of the debt mutual fund scheme might not straightaway suggest a risk-free or zero-risk investment but they probably can suggest safer investment options as investors’ risk appetite. Mutual fund advisors and wealth advisors suggest investors to wipe out the popular misconception that debt mutual fund scheme is risk free investment because in reality it is not. Every debt mutual fund scheme has certain risk element attached to it.

Ultra-short or short-term mutual fund is one of the popular investment instruments under the debt fund scheme. The scheme is for investors who want to invest for a short duration along with low-risk exposure. This debt mutual fund scheme is a short-term debt fund with a holding period ranging from 1 year to 3 years. The short-term debt fund under debt mutual fund scheme is highly sought investment instrument due to its ability to offer higher liquidity, higher returns and tax-efficient. The short-term debt fund is considered as safe investment instrument but it too comes with low-risk or moderate risk.

Trade pundits and mutual fund advisors understand the conservative investors need to have control over their invested money and their urge to mitigate the risk associated with mutual fund investment but they clearly suggest the fact that zero-risk debt mutual fund scheme doesn’t exist.

However, they suggest opting debt mutual fund schemes that come with least risk factor. Advisors believe that low-risk debt mutual fund scheme will be able to garner good returns for investors and help them in multiplying their investments.

Opting for a short-term mutual fund scheme proves to be similar to a zero-risk debt mutual fund scheme as this instrument is extremely tax-efficient and offers good returns in short duration. The short-term mutual fund is similar to banks fixed deposit for its features and benefits. However, according to the trend of last few years, many mutual fund advisors suggest that investing in short-term mutual fund is beneficial as it offers returns around 10% as opposed to bank FDs that offer a maximum of 7% returns for short duration.

Let us discuss the most important factors that make short-term mutual funds the most sought investment option.

Steady returns

Being a debt mutual fund instrument the investors are likely to enjoy steady returns on their investment. The period of investment is less and returns offered are considerably higher.

Low-risk factor

As we know that every debt mutual fund scheme has an exposure to certain amount of risk but the short-term mutual fund is comparatively less riskier for the following reasons:

  • The investment is towards government securities and bonds
  • They may come with a pre-determined maturity date
  • They are unaffected by capital market fluctuations

Thus, the above factors contribute to minimizing the risk factor considerably making them the most sought investment instrument.

Balanced Strategy

Short-term mutual fund is for short duration so they have a smart and balanced strategy for asset allocation. As they are for short duration they strategically make asset allocation in order to avoid capital erosion.

Meet financial goals

As the short-term mutual funds works best for meeting short term financial goals as they are less risky and help catering to financial goals within 1 year to 3 years of span.


Investing in short-term mutual fund is a good investment option for numerous reasons like:

  • They are less risky as compared to other debt fund instruments.
  • They are best suited for fulfilling short-term financial goals.
  • They offer best bet in an environment of turbulent market conditions.
  • Investments are usually in government securities and instruments so they perform extremely well when the market offer high interest rates on these instruments.
  • The investments perform fair even in negative situations like fall in interest rates, fall in market movement etc.
  • The fluctuations in the capital market do not affect the performance making them less risky and a highly sought investment instrument.
  • Interest rate fluctuations do not deter the performance of the debt mutual fund scheme as it is for short duration.

Thus, by overlooking the above stated parameters even though the short-term mutual fund has a certain risk factor but due to their high-performance level they are the most recommended investment instrument and considered as zero-risk debt mutual fund.

Recommended Read: Why are Open Ended Debt Mutual Funds Better than Fixed Maturity Plans?

Chaitali Mehendale
Written by Chaitali Mehendale
Chaitali Mehendale is an avid reader, blogger and traveller. When she is not busy writing stupendous content, she prefers to explore new places and meet new people!