A conservative hybrid fund is a type of hybrid mutual fund that invests 75%-90% of its overall assets in debt securities and the remaining 10%-25% in equity. These schemes invest a majority of its fund corpus in fixed income instruments like treasury bills, debentures, bonds, etc., and a limited portion in stocks. Since these funds follow a conservative investment strategy, both risks and returns are lower compared to aggressive hybrid funds.
The following table presents the top 10 conservative hybrid funds in India based on their 5-year annualised returns:
Conservative Hybrid Fund Name | 5 Year Annualised Returns* |
Kotak Debt Hybrid Fund – Direct Plan – Growth | 9.68% |
Canara Robeco Conservative Hybrid Fund – Direct Plan – Growth | 9.01% |
ICICI Prudential Regular Savings Fund – Direct Plan – Growth | 8.76% |
SBI Conservative Hybrid Fund – Direct Plan – Growth | 8.63% |
HDFC Hybrid Debt Fund – Direct Plan – Growth | 7.73% |
Baroda BNP Paribas Conservative Hybrid Fund – Direct Plan – Growth | 7.34% |
UTI Regular Savings Fund – Direct Plan – Growth | 7.00% |
HSBC Conservative Hybrid Fund – Direct Plan – Growth | 6.94% |
Axis Regular Saver Fund – Direct Plan – Growth | 5.93% |
Franklin India Debt Hybrid Fund – Direct – Growth | 6.62% |
*Mutual Fund investments are subject to market risks, read all scheme-related documents carefully.
A conservative hybrid fund is a mutual fund that has both equity and debt instruments as its underlying assets. The Securities and Exchange Board of India (SEBI) has mandated the fund managers of these schemes to allocate 75% to 90% of their assets in debt instruments, while the remaining 10% to 25% is to be invested in equities and equity-linked instruments.
This investment pattern enables these schemes to generate reasonably good returns at low risk. The portfolio is majorly exposed to debt which considerably reduces its volatility. But, the presence of equities improves the chances of the portfolio generating decent returns.
Generally, conservative mutual funds are a suitable investment option for investors who can remain invested for a minimum of 2 to 3 years.
In this case, we have taken one of the best hybrid funds – Canara Robeco Conservative Hybrid Fund as an example. The fund has 22.81% investment in domestic equities of which 14.06% is in large-cap stocks, 1.48% is in mid-cap stocks, 3% in small-cap stocks.
The fund has 71.19% investment in debt, of which 43.69% in Government securities, 27.5% is in low-risk securities. This shows how this conservative hybrid fund has invested most of its corpus in debt instruments to mitigate risks. This is also the reason why such funds tend to generate low, but stable returns.
Let us take a look at the details of the best-performing conservative hybrid mutual funds in India:
Considered as one of the best conservative hybrid funds, the scheme was launched on January 30 2013, and has 24.46% investment in domestic equities and 70.06% investment in debt securities. The fund’s main objective is to provide investors with moderate exposure to equities while generating regular returns through its debt portfolio. Given below are the details of this scheme:
Canara Robeco Conservative Hybrid Fund is also considered as one of the best conservative hybrid funds due to its performance over the last few years.
This conservative hybrid mutual fund was launched on January 2 2013, and invests in a wide range of debt securities and money market instruments. The scheme charges 1.0% of the sell value as exit load if investors sell off their units within 12 months. Given below are the details of this scheme:
ICICI Prudential Regular Savings Fund invests 21.98% in equities, 60.36% in debt and the rest in oter categories of securities. It was launched on January 3 2013. The scheme aims to generate consistent returns and also enables investors to benefit from long-term capital appreciation. Let us take a look at the details of this conservative hybrid fund:
This conservative hybrid mutual fund allocates 23.61% of its assets in equities and 70.75% in debt instruments.
This mutual fund levies 1.0% of the sell value as an exit load if investors sell off their investments before 365 days. It was launched on January 8 2013. Given below are its details:
Launched on January 1 2013, this conservative hybrid mutual fund invests 74.46% of its assets in debt securities, while the remaining portion is allocated to equities. Investors have to pay an exit load of 1.0% if they redeem their mutual fund units before the maturity date. Listed below are vital details:
This conservative hybrid fund was launched on January 2 2013. This fund’s primary objective is to generate regular returns from debt and money market instruments. It invests 70.1% of its assets in government securities (14.07%) and low-risk securities (56.03%). The remaining 23.93% is allocated to large cap, mid cap and small cap stocks. Let us look at the details:
This mutual fund was launched on January 2 2013, and invests 72.32% in debt securities, such as low-risk securities and government securities. It invests the remaining 24.58% of its assets in equities. Its portfolio turnover ratio is 93.00% while the category average turnover ratio is 36.75%. Fund details are as follows:
The HSBC Conservative Hybrid Fund was launched on January 11 2013. The equity portion of this mutual fund invests primarily in technology, capital goods, construction, finances and chemicals companies. The debt portion of the fund’s portfolio invests in debt securities of high credit quality which reflects that it has high-quality borrowers. Given below are more details:
This fund was launched on January 7 2013. Compared to other funds in the same category, the Axis Regular Saver Fund is less exposed to financial and technology sectors. The scheme has allocated 73.25% of its assets to debt securities, while 23.5% are allocated to equities. Given below are further details:
This mutual fund was launched on January 1 2013 and has 58.73% investments in debt securities. It has invested 24.49% of its investments in equities. It generates consistent returns and tries its best to minimise losses in a market that is spiralling downwards. More details of this fund are provided below:
Go through the various advantages of conservative hybrid funds:
These schemes facilitate portfolio growth and diversification through investments in both debt and equity. Prominent exposure in debt securities safeguards the portfolio, offering stable returns.
The portfolio of these funds has been designed to carry a lower risk relative to other kinds of hybrid funds. The objective is to protect the principal amount and yield stable returns. Hence, to keep the risk and volatility low, debt instruments get higher weightage.
This fund has a track record of delivering higher returns than fixed deposits. The better returns are a result of the addition of equity in its portfolio. However, for earning higher yields, you will have to bear certain market risks that go hand-in-hand with investment in stocks.
If you are close to your retirement, you can afford to be a little bit conservative so that the profit doesn’t disappear with market fluctuations. These schemes can be a favourable option to deviate from regular equity funds prior to retirement.
Returns from fixed deposits are reasonable, but they cannot beat the inflation rate by a high margin. After taking inflation into consideration, the yields from FDs will barely stick to 1-2%. Contrarily, returns from conservative hybrid funds have the potential to beat inflation owing to the equity exposure.
An investor who doesn’t want to bear the risk of a pure equity portfolio but wants to get some equity exposure can choose these schemes. It is suitable for individuals who do not wish to risk their principal sum for the sake of achieving higher returns.
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Consider the following parameters before conservative hybrid funds:
You will have to pay certain expenses while investing in mutual funds. Such costs can be an expense ratio and an exit load. A higher expense ratio can reduce your returns. So, you must pick a scheme with a lower expense ratio.
Fund managers play a crucial role in asset allocation and fund selection. Hence, an efficient management team having years of experience and expertise can design a scheme that has the potential to fulfil the objective that the fund was set up to achieve.
Prior to opting for conservative hybrid funds, examining a fund’s past returns is vital. Although historical returns don’t guarantee future gains, it is imperative to research about the scheme’s past performance.
Investment objectives of all individuals are not identical. Hence, you must ensure that the scheme’s investment goals align with your financial and personal goals.
You can make a lump sum investment or opt for a Systematic Investment Plan (SIP) to invest in conservative hybrid funds. The lump sum mode facilitates a one-time investment in this type of scheme, while a SIP mode allows you to invest periodically, such as yearly, half-yearly, quarterly and monthly.
Conservative hybrid funds are taxed like any debt fund because 75% to 90% of their assets are allocated to debt securities. The taxation of capital gains earned from these mutual funds depends on their holding period. Details of taxation are provided below in points:
If the holding period of conservative hybrid mutual fund units is less than 3 years, the capital gains are added to the investor’s income. Taxes applicable will depend on the income tax slab he or she falls in.
If the holding period of the investment exceeds 3 years, then it falls under long term capital gains. LTCGs are taxed at 20% plus indexation benefits. Cess and surcharge will be applicable.
A conservative hybrid fund is a debt-focused hybrid fund; its returns are impacted by market fluctuations owing to the equity exposure. So, when the stock market is high, it can generate significant gains. If you’re a risk-averse investor, you can consider investing in this type of hybrid scheme.
But if you want to invest in pure equities, start investing with Navi Mutual Fund. Navi offers a host of low-cost index mutual funds that invest primarily in equities. Thinking about the risks? Don’t worry, you can start with as low as Rs.10!
Ans: If you sell the mutual fund units before 3 years from the purchase date, then you will fetch short term capital gains (STCG). Such profits or gains will be included in your income and will be taxable as per your income tax slab.
Ans: In case you sell the mutual fund units after 3 years, then you will earn long term capital gains (LTCG). The tax rate on these gains will be 20%. Moreover, investors will be eligible for indexation benefits.
Ans: An expense ratio is a yearly fee that fund houses impose on investors to cover the cost of running the fund. The operating expenses of a mutual fund scheme include advertising expenses, management costs, distribution fees, and more. An expense ratio is inversely related to a mutual fund’s size.
Ans: An exit load denotes a charge that a fund house levies on investors when they redeem the units of a mutual fund scheme before the completion of a pre-specified time period. The main purpose of this fee is to limit investors from leaving the scheme before the lock-in period ends.
Ans: No, conservative hybrid fund schemes are not tax-saving in nature. However, you can get tax benefits through investments in ELSS (Equity Linked Savings Scheme) funds. Section 80C of the Income Tax Act facilitates a tax deduction of up to Rs. 1,50,000 in a financial year for investing in ELSS funds.
Ans: Conservative hybrid mutual funds are open-ended schemes that must mandatorily invest 75% to 90% of their assets in debt and the remaining portion in equities. These mutual funds aim to generate reasonable and stable returns at moderate risks.
Ans: Compared to equity mutual funds, conservative hybrid funds are considered to be safer, though not completely safe from the fluctuations of market. Considering that these schemes invest a major portion of their assets in debt, they tend to provide stable but low returns compared to equity funds.
Overall, these funds are ideal for investors with low-risk appetite but who want to invest in limited equity options. Conservative hybrid funds could also work for investors looking for a stable income other than bank deposits.
Ans: Conservative hybrid funds carry more risk than debt funds and less risk than pure equity schemes. It is designed carefully to ensure the scheme carries lower risk than other hybrid funds.
Ans: It entirely depends on your investment goals and risk-appetite. Generally, it is a suitable investment option for investors who have a low-risk appetite. People who wish to begin investing in equities or those who want returns higher than FDs can consider this investment option.
Ans: Navi Regular Savings Fund is a conservative hybrid fund offered by Navi Mutual Fund. It tends to offer higher returns than Fixed Deposits (FDs). Investors who have a low-risk appetite could consider this scheme.
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Disclaimer: Mutual Fund investments are subject to market risks, read all scheme-related documents carefully.
This article has been prepared on the basis of internal data, publicly available information and other sources believed to be reliable. The information contained in this article is for general purposes only and not a complete disclosure of every material fact. It should not be construed as investment advice to any party. The article does not warrant the completeness or accuracy of the information and disclaims all liabilities, losses and damages arising out of the use of this information. Readers shall be fully liable/responsible for any decision taken on the basis of this article.
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