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What Are Conservative Hybrid Mutual Funds
Conservative Fund meaning can be explained as the hybrid mutual funds that invest 75-90% of the total assets in debt classes, while the rest 10-25% is invested in equity. These are considered to be comparatively safer investments, as a majority of the funds are allocated towards debt securities which generally stay safe with stable returns.
Conservative Hybrid Fund is an open-ended hybrid scheme and is relatively at lower risk. These funds allocate more than three-fourths of your portfolio in government bonds, debentures, term deposits, and other corporate bonds to provide investors with a stable income. The balance amount is invested in equity and equity-related instruments to help enhance overall returns.
Investments in the low-risk assets make Conservative Funds meaningful, and less volatile. They provide higher returns as compared to fixed deposit schemes and are a good option for investors who are comfortable holding the fund for 3-5 years or more.
Advantages of Investing in Conservative Hybrid Funds
These funds provide many benefits for the investors. Some of these are:
- Higher Returns: Conservative Hybrid Funds are known for their higher returns in comparison to FDs from banks. However, the returns come with some risks involved as stock markets are volatile.
- Less Risky: The main object of these funds is to ensure the safety of the principal amount with decent returns. They carry a low-risk factor in comparison to other hybrid funds.
- Diversified Portfolio: Diversification of funds allocation in equity and debt, ensures stable returns with minimum risks.
- Higher Post Tax returns: When investors hold these funds for 3 years or more, it makes them eligible for indexation benefits. Thus, the investors have to pay less tax on their overall returns.
Taxation of Conservative Hybrid Funds
Conservative Hybrid Funds consist of 75-90% of its assets for debt class, therefore they have to follow the tax structure which is the same as debt funds. Conservative Hybrid Fund Taxation depends on the capital gains made by selling Conservative Hybrid Funds according to the total period of investments. These can broadly be classified into two categories:
- Short-Term Capital Gain Tax (STCG): When the funds are sold within three years of their purchase, they fall in the category of STCG. The profits made by selling the funds are added to the investor’s income and are taxed as per the income tax slab they fall in.
- Long-Term Capital Gain Tax (LTCG): When the funds’ investments are held for more than three years then the gains are known as LTCG. Investors are required to pay at the rate of 20% along with the benefits of indexation.
Things to Consider Before Investing in Conservative Hybrid Funds
Some of the most important aspects to consider before investing in Conservative Hybrid Funds are:
- Investment Risks and Returns: Investors should understand that even a high allocation towards debt instruments in a portfolio does not ensure that there is no risk at all. Although the equity class exposure is less, the overall risk factor becomes comparatively low, in Conservative Hybrid Funds.
- Goals of Investment: Every investor has a different need. Some are keen to get results in a short period while others invest for long-term goals. Conservative Hybrid Funds tend to provide the best returns in the medium term, and even better when they are held for a long term.
- Expense Ratio: Managing Conservative Hybrid Funds requires a small fee to be paid to an asset management company. These charges are known as the expense ratio. Charged yearly, it can range between 0.5-2%. Naturally, the lower the expense ratio, the less amount you will have to pay as the service charges.
How Can You Invest in Conservative Hybrid Funds Through Nivesh
Any investor can enjoy the benefits of investing through Nivesh in the following easy steps:
- Create an account in Nivesh by providing your basic KYC details. (If you already have an account then just login into your account)
- On your portfolio page click on the Buy New tab at the right top corner of the screen.
- Select the category and choose the funds you want to purchase.
- If you already know the name of the fund to buy, then you can search the particular fund through Quick Order.
- Fill the transaction details and confirm. You can place up to 5 orders in one go.
- You can make payment through your registered account through UPI, Direct Pay, or NEFT/ RTGS , Bank Mandate or Cheque. For same-day NAV, select UPI, Direct Pay or NEFT / RTGS as other payment options may take a few days to clear, Nodal account takes about 1-2 days to clear payment from the approved mandate and cheque takes about 2-5 days in clearing due to which you will not get the same-day NAV.
Frequently Asked Questions (FAQs)
1. Are Conservative Hybrid Funds Safe to Invest?
As per SEBI guidelines, Conservative Funds are mandatory to invest 75-90% of the total assets in debt class, and the rest amount inequities. As the majority of investment is in fixed-income securities, these are considered low-risk investments.
2. How much Share of a Portfolio Should be Invested in Conservative Hybrid Funds?
An ideal asset allocation depends purely on the personal preference and investment goals of the investor. However, a good investment should be a mix of aggressive and less aggressive funds to help maintain a balanced portfolio.
3. What are the Things to Consider Before Investing in Conservative Hybrid Funds?
People invest with a clear objective in their minds. Some factors to consider before investing in Conservative Hybrid Funds:
- Investment objective
- Fund performance history
- Experience of the fund management agency
- Expense ratio
- Exit load if any
4. How Long Should you Invest in Conservative Hybrid Funds?
Conservative Hybrid Funds are known to produce good results with an investment horizon of a minimum of three years or more. Consider investing in these funds for 3-5 years as an average.
5. Can we Redeem Conservative Hybrid Funds Anytime?
Conservative Hybrid Funds are open-ended and can be redeemed as per your request. Some of these funds may have a lock-in period of three years from the date of investment, where the investors have to pay a small fee as an exit load when they redeem their funds before three years.
6. How are Conservative Hybrid Funds Taxed?
Conservative Hybrid Fund taxation depends on the capital gains made by selling Conservative Hybrid Funds according to the total period of investments, they are classified into short term and long term capital gains.
