Every investor must ask this question when making an investment.

The higher the risk you take with your money, the greater the chance of higher returns. The lower the risk, the lower the return.

Which is why you should not get misled by high returns -- you could also end up losing all your money.

That is why equity (shares) rates high on the risk factor compared to other investments like post office saving schemes, fixed deposits and bonds. The returns can be phenomenal. So are the chances of you losing your money.

So how risky is your mutual fund? Check out the ratings given by mutual fund research outfit Value Research.

How the funds are rated

Here is a quick and easy way to identify mutual funds that have produced strong risk-adjusted performances vis-a-vis their peers.

The funds with a 5-star rating are the best and those with a 1-star rating are the worst.

Note: Best does not indicate the highest return when compared with the rest. It means you will get a good return without putting your money at too much risk.

How the rating is done

A fund's return for each month is taken since the day it is launched.

This return is compared to other 'riskless' investments like government investments which have no risk per se. This means the funds do not rate very high if they give phenomenal returns, but have taken tremendous risks to do so.

Only funds with a minimum performance history of three years are considered.

AMCs that have the most 5-star funds

Do remember mutual fund houses (Asset Management Companies) offer more than one fund. Take a look at the AMCs that have the most number of 5-star funds.

The top 5-star diversified equity funds

Diversified equity funds are those that invest in the shares of various companies of various sectors.

Here are the funds that offer the best returns when the risk factor is taken into account.

 Remember, it is not always about the return. The risk you are putting your money at plays an important role.