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All you need to know about Conservative Hybrid Funds​

Investing money via mutual funds and other financial instruments has become easier these days. However, if something can keep a worrywart up on his toes, it is the risk factor related to the investment decisions. This is where the origin of conservative hybrid funds exists. On the one hand, the growth of the domestic mutual fund industry  standing at ~14% YoY for quarter two of 2022, is likely to attract investors. On the other hand, conservative hybrid funds seem attractive to people who want minimum exposure to market volatility along with moderate returns.

If you also wear a conservative hat while making investment decisions, you may consider adding conservative hybrid funds into your portfolio. Before you even do that, let’s understand their fundamentals.


What are Conservative Hybrid Funds?

At their core, conservative hybrid funds are hybrid mutual funds that have a portfolio of both debt and equity securities but with a relatively lower risk. Since the majority of its assets are in debt securities, which is considered to be relatively less risker than the equities, they are termed conservative hybrid funds.

Their primary investment is in debt securities (75-90%), while the rest of the portion ​is allocated to equity and equity-related instruments.


How do Conservative Hybrid Funds work?

Let’s start with the basic working of mutual funds in general -

You invest money in mutual fund schemes with underlying assets chosen per the scheme’s objectives. These assets can fetch you the expected returns as a whole. With equity funds, stocks of companies are the primary underlying assets. Similarly, debt funds have corporate bonds, government bonds, and debt securities as their primary underlying assets.

As per the investment distribution ratio of conservative hybrid funds mentioned above, most of their assets are in debt instruments. Here, the fund manager will rebalance the portfolio to maintain the proportion of equity and debt as per the regulation.


Who can invest in Conservative Hybrid Funds?

As the name suggests, conservative funds aim to take relatively lesser risks for wealth generation. This makes them a suitable investment option for risk-averse investors including:

● Investors who want to start investing in equities without having an all-equity portfolio
● Investors who seek the possibility of earning better returns than traditional investment instruments


Things to note while investing in Conservative Hybrid Funds

Your investment goals:

Before making mutual fund investments or any other investment, it makes sense to set goals you want to achieve with these financial decisions. Conservative hybrid funds may be ideal for short to medium term goals.

Investment risks:

While the higher proportion of debt components in these mutual fund schemes aims to reduce the overall risk, you should keep in mind that they are not risk-free. There are certain risks related to these investments, including credit risk, interest risk, and inflation risk.

Expense ratio:

Expenses related to mutual fund investments tend to bite into the expected returns. To manage your investments, the AMCs charge a fee, which is called an expense rati​o. So, ensure you know about this fee and select a scheme with a lower expense ratio.



What is a conservative hybrid fund?

These are hybrid funds that invest 75-90% of their corpus in debt instruments and 10-25% in equity and equity related instruments. They are relatively less volatile as the equity investment proportion is low.

Are conservative hybrid funds safe to invest?

The higher proportion of debt investment under these funds can be considered the reason behind their suitability for risk-averse investors. You can assess your needs and risk profile to make an informed investment decision.

How much share of a portfolio should be invested in conservative hybrid funds?

Since every investor has a distinct risk profile, it would be best to consider your individual needs and risk tolerance before you make conservative funds a part of your portfolio.


Disclaimer: The information herein is meant only for general reading purposes and the views being expressed only constitute opinions and therefore cannot be considered as guidelines, recommendations or as a professional guide for the readers. The document has been prepared on the basis of publicly available information, internally developed data and other sources believed to be reliable. The sponsor, the Investment Manager, the Trustee or any of their directors, employees, associates or representatives (“entities & their associates”) do not assume any responsibility for, or warrant the accuracy, completeness, adequacy and reliability of such information. Recipients of this information are advised to rely on their own analysis, interpretations & investigations. Readers are also advised to seek independent professional advice in order to arrive at an informed investment decision. Entities & their associates including persons involved in the preparation or issuance of this material shall not be liable in any way for any direct, indirect, special, incidental, consequential, punitive or exemplary damages, including on account of lost profits arising from the information contained in this material. Recipient alone shall be fully responsible for any decision taken on the basis of this document.

Mutual Fund Investments are subject to market risks, read all the scheme related documents carefully.

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