Usually, every mutual fund is created to spread risk across thousands of investors to minimize it as much as possible. However, there are different risk profiles for different types of mutual funds. Some are risky and some are almost risk-free. You, as an investor, should know that the higher the risk, the higher the return. 

Now, it is up to you to figure out your risk appetite because this will allow you to make an informed decision into your chosen fund. 

Money Market Funds 

Money market funds are fixed-income funds that are known for their very low-riskiness. They are considered one of the safest investments. The low-riskiness means these funds produce stable and marginal returns that are not very large. However, your principal investment remains safe. 

The fund manager invests in low-risk securities including high-quality short-term debt and government bonds. Their total assets are usually held in cash, commercial papers, certificates of deposit. 

Income Market Funds 

Income funds are usually low-risk investments that focus on current income returns on a regular basis. In Pakistan, most Shariah-compliant income funds invest in sukuks, fixed-income bonds, and commercial papers. Income funds invest in assets with high credit quality, so they produce returns that are slightly higher than money market fund returns because their riskiness is slightly greater. 

Equity Market Funds 

The fund manager of an equity market fund will invest in various stocks listed on the Karachi Stock Exchange. These funds are ideal for newbie investors because equity market funds require relatively low initial investments and expertise. Importantly, due to the funds’ portfolios being diversified, risk is often at a minimum.