The beauty of hybrid funds is that they come in all shapes and sizes – whether you are a conservative investor or have a high risk tolerance, hybrid schemes afford you the flexibility of maintaining your equity and debt securities in proportions that align with your investment strategies and preferences.

For those who prefer the low-risk approach and want to prioritize the preservation of their capital over the prospect of high returns, investments in conservative hybrid funds can be a suitable investment choice.

Conservative hybrid funds are hybrid mutual funds wherein 75% to 90% of the assets have to be invested in debt and the remaining 25% to 10% can be invested in equities. Majority of the assets in conservative funds are invested in debt securities like bonds, debentures and treasury bills making them an appropriate investment vehicle for conservative investors because of the high weightage of debt in these funds which makes them safe avenues. Fund managers keep tweaking the composition of the portfolio depending on market conditions to maintain the equity/debt ratio.

These funds offer better returns than pure debt funds because of the exposure to stocks and hence they are ideal as a low-risk investment that offers regular returns and can also pave the way for attaining mid to long term financial goals.

Advantages of conservative hybrid funds
  • Higher returns than pure debt funds or fixed income instruments: Conservative hybrid funds deliver better returns than pure debt funds or traditional fixed income instruments like FDs because of the inclusion of the equity component of the schemes. But it is important to bear in mind that conservative hybrid funds also carry higher risks than pure debt funds or FDs.
  • Less risky than equity-heavy hybrid funds: Compared to other variants of hybrid funds, which have a greater equity exposure, the portfolio of conservative hybrid funds is less risky because the concentration of debt instruments neutralizes the risks posed by the equity element to a large extent. Should you be looking at earning decent returns (better than pure debt and FDs) with low chances of capital erosion due to market volatilities, conservative hybrid funds can be the solution to your investment requirements.
  • Portfolio diversification: These funds maintain a well-diversified portfolio of both equity and debt. The debt elements provide stability and ensure stable returns while the equity element works as a catalyst for enhancing returns.
Taxation of conservative hybrid funds

As conservative hybrid funds invest 75% to 90% in debt securities, they are not classified as equity-oriented mutual funds for the purpose of taxation and they align with the tax structure of debt funds. The tax slabs and the availability of indexation benefit will depend on the tenure of your investment.

Short-term Capital Gains Tax will be applicable if the holding period is less than 36 months. Your gains will beadded to the investor’s regular income and taxed at the regular tax rates as applicable. If the holding period exceeds 36 months, Long-term Capital Gains Tax will be applicable at the rate of 20% and the benefit of indexation can also be availed.

Things to consider when investing in conservative hybrid funds
  • While conservative hybrid funds have a low-risk factor owing to the high volume of debt components, they are not risk-free. This is because any fund or investment vehicle that has equity exposure is bound to carry some risks. However the risk factor is much lower than other kinds of hybrid funds with higher equity exposure and pure equity funds.
  • Fund houses and fund managers are a decisive factor in the performance of your fund and hence it is imperative you do your homework before choosing a fund for investment. Also, there are various costs entailed in mutual fund investments such as expense ratio, entry load, exit load that could cumulatively impact your overall returns. Before parking your money in a fund, you should have an estimate of the costs you would have to bear as an investor.
Disclaimer: An Investor Education Initiative by Mirae Asset Mutual Fund

For information on one-time KYC (Know Your Customer) process, Registered Mutual Funds and procedure to lodge a complaint, refer to the knowledge center section available on the website of Mirae Asset Mutual Fund

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


IE Disclaimer

An investor education initiative by Mirae Asset Mutual Fund.

For information KYC process, Registered Mutual Funds and the procedure to lodge a complaint, refer knowledge centre section available on the website of Mirae Asset Mutal Fund.

Mutual fund investments are subject to market risks, read all scheme related documents carefully.