Are you looking for stable long-term growth-focused investment options? Are you looking to balance out both security and dash of debt and equity investments respectively? Then conservative hybrid mutual funds are the perfect option for you.This fund balances your investments and provides ready income and potential capital increase. You can benefit from market ups and downs while having a balance that avoids risks. Here in this article, we’ll delve into how these conservative hybrid mutual funds work, their benefits, and how they can benefit you by adding them to your portfolio.
Understanding Conservative Hybrid Mutual Funds
The Conservative Hybrid funds invest in Debt instruments and engage in some stock investment. These funds aim to deliver much higher returns than available bank fixed deposits without taking many risks.
Conservative Hybrid Funds are mutual funds which invest between 75% to 90% of their corpus in debentures and the balance 10 to 25% in stocks. To that end, it is referred to as conservative-fixed income because allocation of assets in the fund is majorly in debt securities which are deemed to be bowls of very low risk.
How do Conservative Hybrid Funds Work?
All mutual funds contain allocations in different categories of asset classes, which form the base on which your money is invested. These assets generate your returns. Equity-linked funds are a type of mutual fund which primarily invests in stocks, while debt funds focus on bonds and fixed-income securities.
A conservative fund is one where the fund invests in both equity and debt which are their major instruments of investment. As per regulation, these funds are mandated to have 75% to 90% of their fund’s portfolio in debt. The remaining 10% to 25% can be allocated to equities, while the specific allocation can be chosen depending on the risk tolerance level and available options. This implies that a conservative hybrid fund invests a large portion of the fund’s resources in bonds, debentures, treasury bills, and a small portion in the stocks of the companies.
Therefore, Fund managers managing conservative hybrid funds are often compelled to adjust the portfolio regularly so that a greater percentage is invested in debt and a lesser percentage is invested in equity, as provided by the regulation.
Why Adding Conservative Mutual Funds to Your Portfolio Can Benefit?
- Holding more debt securities to reduce risks.
- Investments in conservative mutual funds help to produce capital gains.
- Potential returns with an annualization of 7% – 13%
- Most appropriate for investors with little risk appetite and those who wish to balance out their stakes.
Advantages of Investing Conservative Hybrid Mutual Funds
- Capital Diversification: Conservative mutual funds include stocks and bonds, therefore giving you a direct investment in several products. Moreover, these funds primarily invest in debt securities hence lowering the risk aspect, and having more on equity instruments, yields better returns.
- Low Volatility: You are not sensitive to many changes in the market since conservative mutual funds focus on investing in debt instruments. Furthermore, the risk level is relatively low compared to investing in equity funds, which makes these funds favourable to low-risk takers.
- Stable Returns: Holding conservative mutual funds puts you in a position to make gains regardless of the market instabilities. Therefore, this advantage of conservative hybrid mutual funds attracts low-risk tolerance investors towards investing in these funds.
- Better Returns: Due to the diversification of conservative mutual funds you can get better returns than what you get from fixed deposits. These funds invest in equities and debts thus in the debts, the principal is protected while in the equity the capital value appreciates.
- High Post Tax Returns: Anybody holding the conservative funds for a tenure of 3 years or more can avail of the indexation advantages. In such scenarios, as an investor, you have an obligation of remitting less amount of tax on your total returns.
How to invest in Conservative Hybrid Funds?
Investing in Conservative Hybrid mutual funds on any demat account is very simple. These are the procedures below which you have to observe.
- Step 1: Create an investment account and complete your KYC details. KYC and IIN will be created
- Step 2: Select the details a conservative hybrid fund.
- Step 3: Enter the amount you are willing to invest
- Step 4: Click on proceed.
Who Should Invest in Conservative Hybrid Mutual Funds?
Conservative Hybrid Mutual Funds are suitable for a variety of investors, including:
- Retirees and Senior Citizens: These funds offer predictable cash flows and thus are suitable for retirement or senior citizen investors as they get their regular incomes without high risks.
- Risk-Averse Investors: In turn, investors, who consciously avoid high risk and focus on preserving their investments’ value, will be interested in such funds.
- First-Time Investors: For instance, those that are unable to invest in high risks yet are interested in equity funds, can consider investing in conservative hybrid funds.
How to Choose a Conservative Hybrid Mutual Fund?
The following factors must be considered while choosing a Conservative Hybrid Mutual Fund:
- Fund Performance: Estimate various aspects of the fund’s historical performance. Performance history cannot predict future earnings, but it gives information on how the fund has dealt with changes in the market.
- Expense Ratio: Look at the management expense ratio of the fund. Lower expense ratios also improve portfolio returns by lowering costs in funds.
- Fund Manager’s Track Record: Educate yourself on the experience and past performance of the fund manager. An experienced fund manager, especially one who has delivered good results in the past can bring value to the fund.
- Portfolio Composition: Analyze the risk by researching about the allocation or proportion of debts and equities and equity linked instruments in the fund. Confirm that your risk profile and investment objectives match with the investment plan of the fund.
Wrapping Up: Should You Invest in Conservative Mutual Fund?
Deciding whether a conservative mutual fund is a good investment option for you depends on your personal financial situation. It also takes into account your risk tolerance, investments goals i.e., whether it is long term or short term, etc. Therefore, you must carefully introspect your own ideas and invest accordingly.
Looking to safeguard your principal amount most accurately? Do read our disclaimer provided above.
Please share your thoughts on this post by leaving a reply in the comments section.
Also, check out our recent post on: “What is the Expense Ratio in a Mutual Fund? Formula and Calculation“
To learn more about mutual funds, contact us via Phone, WhatsApp, Email, or visit our Website. Additionally, you can download the Prodigy Pro app to start investing today!
Disclaimer – This article is for educational purposes only and by no means intends to substitute expert guidance. Mutual fund investments are subject to market risks. Please read the scheme related document carefully before investing.
