What are conservative mutual fund investment strategies and how to plan them?

With the risks involved in direct investing, mutual funds investment plans provide retail investors a safer way to participate in markets and build long term wealth. Conservative mutual fund strategies aim for low risk and stable returns through diversification. This article discusses conservative mutual fund strategies suitable for risk-averse Indian investors.

Types of conservative mutual funds

Debt Funds: They primarily invest in high quality debt instruments like government securities and corporate bonds. Relatively low risk but also offer lower returns than equities.

Balanced Funds: These funds maintain a mix of 60-80% debt and 20-40% equities for participating in uptrends while providing downside protection.

Gold Funds: Diversify a small portion (5-10%) into funds investing in physical gold which acts as a hedge in times of market turbulence or inflation.

Choosing the right debt fund

Among debt funds, focus on high quality portfolios with at least 80% investment in highest rated securities. Specifically look for:

  • High credit quality portfolio with over 80% investment in AAA rated papers.
  • Average maturity of the portfolio is in the range of 3-4 years for moderate interest rate risk.
  • Low expense ratio below 1% for greater returns.
  • Track record of managing risks effectively through market cycles.

Systematic investment plans (SIP)

SIPs are preferred over lump sum investments for riding out market volatility. SIP mutual funds average out purchase costs and invest a fixed amount regularly, say Rs.5000/month. Benefits are:

  • Avoids market timing – Invests the same amount irrespective of market ups and downs.
  • Rupee cost averaging – More units are purchased when prices are low.
  • A disciplined way to build wealth over 15-20 years through regular investing.

Difference between SIP and mutual funds through lump sum

For long term wealth creation, an SIP ranks better due to rupee cost averaging and discipline of regular investing. However, lumpsum works better when invested during market corrections as more units are purchased at lower prices. Investors can consider lumpsum during downturns and SIPs during ongoing bull markets.

The portfolio should be tailored to individual’s risk profile, financial goals and time horizon. A basic 3-fund portfolio approach is suitable for conservative investors:

Debt fund – 60-70% for stability and regular income

Balanced fund – 20-30% for some equity participation

Gold fund – 5-10% for diversification

Start with higher debt allocation and gradually increase equities over years as risk tolerance improves with time.

Review and rebalance

Periodically rebalance the portfolio to maintain the target asset allocation due to dynamic market movements. Rebalance at least once a year by selling asset classes over their target and purchasing those below target. Also review the funds periodically based on returns delivered and changes in management or portfolio strategy. This helps weed out underperformers and align portfolio with goals.


Conservative mutual fund strategies relying on high quality debt funds, balanced approach and SIP are suitable for risk-averse Indian investors seeking preservation of capital with reasonable returns over the long term. Periodic reviews, rebalancing and adjusting asset allocation as per risk profile are important for achieving financial goals through this strategy.

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