All you want to know about conservative funds

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If you think that the word conservative investor means who invests only in debt then conservative hybrid fund will change your mind. This is a fund that gives the benefit of investing in both debt and equity. This is great for investors that want to earn higher return but also give preference to stability. For them conservative ratio can be good option.

Let us understand what are conservative hybrid funds:

Conservative hybrid funds are mutual funds that invest primarily in debt (anywhere from 75% to 90% of the assets), with the remaining portion (25% to 10%) in equities. The majority of assets in these types of funds are invested in debt securities, like bonds, debentures, and treasury bills, which makes them ideal for conservative investors because of the high weightage of debt. Considering the equity allocation to be on the lower side, conservative hybrid funds are really conservative in nature.

However, since the equity allocation is below 65% to be called an equity fund, this category qualifies as a debt fund.

Best feature of a conservative fund is that it has all the features that a conservative or risk averse investor needs.

Now the question is should you invest in a conservative hybrid fund or not?

If you’re looking for a low-risk investment option that offers regular returns and can help you achieve your mid to long-term financial goals, you should consider investing in a conservative hybrid fund. Conservative hybrid funds offer better returns than pure debt funds because they’re partially invested in stocks. This means that you’ll get the stability of a bond fund with the higher return potential of a stock fund.

Amar Ranu, Head of investment products & Advisory, Anand Rathi Shares & Stock Brokers says “This category may be relevant for investors who want to take the majority of debt allocation with a small equity flavor subject to having a holding period of more than three years to get the indexation benefit”. As per Ace mutual fund, the conservative hybrid mutual funds have given an average return of 7%, 10%, and 6% over 1,3 and 5 years as of 19th September 2022. These funds tend to offer approximately 1 to 2% extra returns. So overall we can say that if there is a conservative investor that needs to earn more return.

Compared to traditional investment instruments, equity or shares give higher returns. But due to higher risk, people stay away from equity instruments. For such people, a conservative fund is a better alternative. Because of the debt portion, the risk is lower. Due to investment in both debt and equity, your portfolio is diversified.

But before investing in these instruments you must know there is some risk in them due to equity. If you’re a conservative investor who is looking to earn higher returns, you may want to invest in these high-reward schemes