Conservative Hybrid Funds

Conservative mutual funds invest in both equity and debt securities in different proportions. With these funds, the primary focus is on investing in debt securities, making it an ideal investment portfolio for low-risk tolerance investors and getting a steady income.

These funds offer portfolio diversification

Higher returns than fixed deposit

Less volatile than pure equity funds

Taxation benefits

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What are Conservative Mutual Funds?

Conservative mutual fund is an open-ended hybrid scheme investing in both equity and debt instruments. In addition, these funds primarily focus on investing in debt instruments, which range between 75% to 90% of the corpus and the remaining in equity and equity-related instruments.

These mutual funds enable you to earn better returns than investing in debt schemes, as they also invest in equities in small proportions. Moreover, these funds offer regular income to investors and capital appreciation, focusing on capital preservation.

Why Add Conservative Mutual Funds to Your Portfolio?

Primarily invests in debt instruments to lower the risk factor
Investment in equity instruments enables capital appreciation
Annualised returns as high as 7% - 13%
Ideal for investors with low-risk tolerance and seeking a diversified investment portfolio

Advantages of Investing in Conservative Mutual Funds

Investing in conservative mutual funds permits you to invest in equity and debt instruments, reducing risk. Here are some advantages of investing in the best conservative mutual funds:

Capital Diversification
Conservative mutual funds invest in equity and debt instruments, giving you exposure to various assets. In addition, these funds primarily focus on investing in debt instruments, reducing the level of risk, and the exposure to equity instruments gives better returns.
Low Volatility
Since conservative mutual funds prioritise investing in debt instruments, you are not exposed to many changes in the market. In addition, the risk level is significantly lower than investing in equity funds, making these funds ideal for investors with a low level of risk tolerance.
Stable Returns
Conservative mutual funds' diversified nature enables you to earn returns even in volatile market conditions. Hence, this advantage of conservative hybrid mutual funds draws the interest of low-risk tolerance investors to invest in these funds.
Better Returns
The diversified nature of conservative mutual funds enables you to earn better returns than fixed deposits. Since these funds invest in equity and debt instruments, the debt securities protect the principal, and the equity ensures capital growth.
Flexibility
In the case of conservative mutual funds, the degree of flexibility is high for the funds since the investor can at any time manage its holding between the selected class of assets. Whenever the condition of the market is not favourable for your investment portfolio, you can easily manage it as per your needs.
High Post Tax Returns
If you hold the conservative funds for a tenure of 3 years or more, it helps you get eligibility for indexation benefits. In such scenarios, as an investor, you need to pay less amount of tax on your total returns.

Who Should Consider Investing in Conservative Mutual Funds?

Conservative mutual funds offer capital appreciation and stable returns. However, before investing your money, check below the categories of investors who can invest in the best conservative funds to earn great returns.

Investors Having Low-Risk Tolerance
Since these funds predominantly focus on debt instruments, it is ideal for investors with low-risk appetite. In addition, the debt instruments offer constant returns and reduce the risk level, and the equity instruments help investors grow their capital.
Investors Starting to Invest in Mutual Funds
Conservative hybrid mutual funds are ideal for investors who want to start investing in mutual funds, as the risk level is lower than other mutual fund schemes. In addition, the lower risk level attracts investors to invest in mutual funds and boosts their confidence about mutual funds.
Investors Seeking Lower Expense Ratio
Conservative mutual funds have a lower expense ratio than other mutual fund schemes. The expense ratio is a key factor in deciding the mutual fund investment, as a lower expense ratio enables you to earn higher returns.
Investors Seeking Diversified Investment Options
Investors looking for a diversified investment portfolio can invest in conservative mutual funds. These funds predominantly invest 75% to 90% of assets in debt securities and remaining in equity instruments, balancing the risk factor.
Investors Having Short Term Goals
Investment in mutual funds can have both short-term and long-term financial goals. If you are someone with goals planned for a short period, then investing in this fund will be feasible. It will give you high returns with low risk involved.
Investors Looking for Steady Returns
If you want to get a regular flow of income from your investment, then conservative funds can be a good option. As the investment is mostly in debt securities, it pays a fixed interest at a fixed rate, helping you get a steady income through the investment tenure.

Factors to Consider Before Investing in Conservative Mutual Funds

Before you start investing in conservative mutual funds, you must keep the following factors in mind to get the best out of this scheme.

Fund’s Performance
When choosing a conservative mutual fund, you must check its performance. You must compare its benchmark and peers to analyse the performance. It will help you select the best conservative money market funds according to your preference.
Investment Horizon
Before investing in conservative mutual funds, you must understand your investment horizon and goals. If you can achieve your financial goals within three years, then it is a short-term goal. However, if you require more time to achieve your goals, then it is a long-term goal. When you plan to invest in conservative mutual funds, your investment horizon must be around three years, making it ideal for achieving short-term goals.
Investment Risk
When you start investing in conservative mutual funds, you must consider your risk tolerance level. Conservative mutual funds have a lower level of risk than other hybrid mutual funds. However, if you want to minimise the risk, you must invest in mutual funds with low dependency on equity instruments.
Expense Ratio
Before investing in these funds, you must go through the terms and conditions of such funds. It will help you understand the expense ratio and choose the best conservative investment fund with the lowest expense ratio.
Fund Manager
A fund manager for your investment portfolio is a crucial consideration in terms of the performance of funds. As they are the ones deciding asset allocations of your funds, it has a direct impact on your returns. Therefore, choosing an experienced fund manager, with a good track record is suggested to get better returns on your money.
Implications of Taxes
Tax implication on your conservative funds generally depends on the investment’s holding period. So if you are planning to hold the investment for 3 or more years, your capital gains will get taxed as per rates of income tax slab. Hence, considering the indexation benefit, choosing this fund as per your financial plans becomes crucial.

Limitations of Investing in Conservative Mutual Funds

Before investing in conservative mutual funds, you must be aware of the following limitations to ensure your investment grows:

Expertise of Fund Manager
The fund’s performance depends on the corpus allocation, decided by the fund manager. Fund managers must have experience in managing debt and equity securities. Hence, fund managers play a crucial role in the success of these funds.
Not Risk-Free
Risk-free completely. There are chances of interest rate and default risks. Interest rate risk refers to interest rate fluctuations giving rise to volatility in returns. Default risk refers to not receiving the principal amount. In addition, the portion of equity is exposed to market volatility.
Low Returns
These mutual funds offer lower returns than aggressive or pure equity mutual funds. The low exposure to equity instruments reduces the return level generated from equity.

How to Start Investing in Conservative Mutual Funds with INDmoney?

After you have understood what Conservative Mutual Funds are, it is time for you to start your investment process with INDmoney. Below are some simple steps to follow to start your mutual fund's investment journey with us.

Step 1
Download the INDmoney app and create your free investment account by completing your KYC ( Know Your Customer).
Step 2
Once your Free investment account is ready, you can either search for Conservative Mutual Funds or go to the mutual fund section and tap on Debt Mutual Funds then tap on the chiclet named Conservative.
Step 3
Choose a Conservative Mutual Fund by looking at aspects like past returns, volatility, downside capture ratio, AUM, Expense ratios and underlying stocks and sectors.
Step 4
You can choose to set up SIP in Conservative Mutual Funds or even invest as lumpSum. Once you are on the individual Conservative Mutual Funds page click from the bottom “One-time” for lump sum investment or “SIP” for systematic investment plan.
Step 5
Choose the amount that you want to invest as SIP or LumpSum.
Step 6
Set up payments. If you choose to set up SIP in Conservative Mutual Mutual Funds, you can do a free automatic pay set up via bank mandate or UPI. If you choose to invest in lumpsum (one-time) then you can pay via UPI, netbanking, NEFT or RTGS.

Should You Invest in Conservative Mutual Fund?

Investing in conservative mutual funds offers an investment option with stability, potential for capital growth and regular income. In addition, it will safeguard your principal as it primarily focuses on investing in debt securities. The smaller allocation of funds to equity instruments enables you to grow your capital with minimum risk.

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Frequently Asked Questions

There is no fixed tenure for investing in conservative mutual funds. However, you must invest for three years minimum to earn better returns.

The best mutual funds for conservative investors invest primarily in debt instruments, like treasury bills, government securities, corporate bonds, etc. It also invests between 10% to 25% of the corpus in equity and equity-related instruments.

When you redeem the investment of conservative mutual funds, it is taxed in one of the following categories:

Short-term capital gains are taxed according to the income tax slab you fall under if you draw your investments within three years.
If you hold your investment for more than three years, it is categorised as long-term capital gain and taxed at 20% with indexation benefits.

Conservative mutual funds predominantly invest the corpus in debt securities, making it one of the safe mutual funds. Hence, these funds are safer for investment than pure equity mutual funds.

Conservative mutual funds are an open-ended hybrid scheme where you can redeem our returns according to your preference. However, you must check the exit load before redeeming the funds.

Here are some key features of conservative mutual funds:

Asset Allocation: These mutual funds invest 75% to 90% of the assets in debt instruments and the remaining 10% to 25% are invested in equity and equity-related instruments.
Better Returns: You will get better results than investing in debt funds and fixed deposits. It is due to the exposure to equity funds in small proportions.
Risk Exposure: The risk exposure is low since these funds primarily focus on investing in debt securities.