Mutual funds invest your money in underlying securities, such as stocks, bonds, etc., depending on your preference, risk tolerance, and financial goals. Equity mutual funds invest in stocks of different companies, and bond-based mutual funds invest in various types of bonds and debt instruments to generate income for investors. However, a combination of equity and bond investments is known as hybrid mutual funds.
Hybrid mutual funds invest in both – stocks and bonds – to generate risk-optimized returns. These mutual funds are further divided into different categories. Conservative hybrid funds are one such category of hybrid mutual funds, including equity and debt as underlying assets. However, as per regulation, these mutual funds need to have 75% to 90% of their assets in debt and related securities. If you are a low-risk taker and want market-based returns from mutual funds, you can consider investing in conservative hybrid funds.
Here is everything you should know about conservative mutual funds:
What are conservative hybrid funds?
Conservative hybrid funds are a type of mutual funds with investments in both stocks and debt instruments. However, these funds primarily invest in debt securities by allocating 75% to 90% of their assets in debt instruments, such as corporate bonds, debentures, government bonds, treasury bills, etc. The remaining 10% or 25% of their funds are invested in equity or other market securities.
The mutual fund managers of conservative funds regularly manage the portfolio to maintain the standard balance between debt and equity.
What are the benefits of investing in conservative hybrid funds?
Here are some of the top benefits of investing in conservative hybrid mutual funds:
- Less risky: Conservative hybrid funds primarily invest in debt instruments, which typically carry low-risk. The objective of these mutual funds is to preserve the capital and generate an attractive rate of return without assuming high risk like equity investments.
- Optimum diversification: Diversification is a key strategy to minimize risks in mutual fund investments. Conservativehybrid funds create a well-diversified portfolio of equity and debt securities. A predominant investment in debt securities ensures the stability of returns and capital preservation in the long run.
- Decent returns: Conservative hybrid mutual funds contain limited equity investments but have a stable income from bonds, creating a portfolio that generates decent returns. The returns from conservative hybrid mutual funds might not be as high as equity mutual funds, but the former offers much higher returns than fixed deposits (FDs).
Who should invest in conservative hybrid mutual funds?
Conservative hybrid mutual funds are a good investment option if:
- You are a new investor in mutual funds and want to begin your equity investment journey without assuming too high risks.
- You are a low-risk investor primarily aiming to invest in these mutual funds to generate higher returns than FDs.
- You are close to your retirement and want to create a portfolio with assured returns and capital security.
However, before you invest in conservative hybrid funds, understand your investment goals, risk tolerance, and expected returns. Moreover, be careful and check the expense ratio of these funds before investing in them.
You can use the Tata Capital Moneyfy app to analyze different mutual fund investments. The Moneyfy app allows you to invest, monitor, and manage your mutual funds over a single platform.