Conservative Hybrid Funds

Conservative Hybrid Funds

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Know what are Conservative Hybrid Funds and how they work.

Key Takeaways

  • Conservative Hybrid Funds is a sub-category of Hybrid Mutual Funds.
  • Fund Managers invest 75% to 90% of assets in Debt Securities and 10% to 25% in Equities.
  • The debt component of these funds can offset the risks from their equity counterpart.
  • These funds are ideal for investors with short to mid-term investment goals.
  • Conservative Hybrid Funds attract Short-term and Long-term Capital Gains Tax.

Mutual Fund investments continue to remain a popular choice among Indian investors. With the SEBI categorising Mutual Funds into several different types, you can choose these investments based on various factors. For instance, you must assess your investment goals, the potential returns, and the investment tenure when you invest in Mutual Funds. If you wish to invest in Mutual Fund schemes comprising a mix of Equity and Debt Funds, you can consider investing in Conservative Hybrid Funds. Here is all you need to know about them.

What are Conservative Hybrid Funds?

Conservative Hybrid Mutual Funds are Hybrid Mutual Funds that invest in a mix of debt and equity schemes. Fund managers invest up to 75% to 90% of the total assets in debt securities, while the remaining 10% to 25% assets are invested in equities.

These Hybrid Funds are regarded as conservative since they typically generate low to moderate returns. While the debt component of the fund plays a part in safeguarding your capital and accruing stable income, the equity component assists in generating faster returns.

Fund managers invest the large debt portion in bonds, Treasury bills, fixed-income securities, etc. Only a small portion of the total asset gets invested in company stocks.

A crucial feature of Conservative Hybrid Funds is that the debt component in the scheme offsets the risks associated with the equity component. The significant investment in debt schemes softens the blow when the market performs poorly.

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Things To Consider

Risk & Returns

Conservative Hybrid Funds possess all equity-related risks since Fund Managers typically invest up to a quarter portion of the fund in Equity securities.

If the Fund Manager allocates funds in stocks of small-cap companies, the market risk would be higher. High risks sometimes translate to high returns. However, since most assets are allocated to debt instruments, the overall risk of the investment portfolio becomes moderate.

Hybrid Conservative Funds are ideal for investors looking for higher returns than Fixed Deposits.

Investment Horizons

If you choose Conservative Funds for investment purposes, you should typically stay invested in these securities for at least two to three years. These investments can help you meet your short-to-medium term financial goals.

Taxation

Since a significant portion of assets is invested in Debt Funds, Conservative Hybrid Funds are taxed like debt funds. Short-term Capital Gains (STCG), i.e., profits redeemed within 3 years of holding the fund, are taxed as per your Income Tax Slab. Long-term Capital Gains (LTCG), i.e., profits earned after holding the fund for 3 years, are taxed at 20% with indexation benefit.

Final Note

Conservative Hybrid Funds let you diversify your portfolio while also steadily building wealth. While the debt portion of the fund helps generate regular income, the Equity portion gives you decent exposure to returns-generating Equity schemes. Thus, a Conservative Hybrid Fund offers the best of both equity and debt asset classes.

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*Disclaimer: This article is for information purposes only. We recommend you get in touch with your income tax advisor or CA for expert advice.

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