What are the Different Types of Low-Risk Mutual Funds?

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  • Written By: Dana DeCecco
  • Edited By: Amanda L. Wardle
  • Last Modified Date: 27 August 2019
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The investor considering low-risk mutual funds will find a large selection to choose from. Money market mutual funds are a low risk investment with a corresponding low yield. Bond funds are available providing different levels of risk. Government bond funds are considered safe but rising interest rates tend to deflate bond prices. Balanced funds may be designed to mitigate risk while providing an income.

Mutual funds are designed to meet specific investment objectives. If risk mitigation is a priority, many different kinds of low-risk mutual funds may be able to achieve this objective. Some are designed with multiple strategies such as risk mitigation along with a monthly or quarterly income. Exploring the vast array of mutual funds available will uncover the right type for a particular need.

Low-risk mutual funds can be load or no-load funds. The load refers to the expenses associated with the fund; they can be front loads, which are paid when the fund is purchased, or deferred loads, paid when the fund is sold. Expenses can take a large percentage of profits or add to losses. No-load funds are available in all mutual fund categories.

A money market fund is required by US law to invest in low-risk securities. They typically invest in government securities and certificates of deposit. These low-risk mutual funds pay dividends comparable to short term interest rates. Money market funds are not federally insured.


Bond fund categories include treasury, mortgage, corporate, and municipal. Treasury securities are the safest but produce the lowest yields. Corporate bonds are guaranteed by the issuing corporation. The risk of default depends on the ability of the company to repay the loan at maturity. Municipal bonds are subject to certain tax credits and may be exempt from federal taxes. Mutual funds may be diversified in these categories.

Some balanced funds can be considered low-risk mutual funds. A balanced fund combines investments in stocks, bonds, and low-risk securities. A conservative balanced fund may be oriented toward a higher percentage of fixed income investments. Balanced funds are sometimes referred to as hybrid funds.

Low-risk exchange traded funds (ETFs) may serve as an alternate investment to low-risk mutual funds. There are no management fees incurred with most ETFs. Treasury bond and municipal bond ETFs are very similar to mutual funds and quite easy to trade. Unlike mutual funds, ETFs only incur capital gains taxes when the fund is sold. The universe of ETFs is expanding to accommodate a myriad of investment objectives.


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