Conservative Hybrid Fund – A Good Option for Low Risk Investors

Today, most of us are looking to invest our money in a financial instrument rather than letting it sit idle. That’s because, over the years, we have realized that investments like mutual funds hold the potential to offer much higher returns as compared to traditional investment tools.

For those who do not know, mutual funds are professionally managed funds that invest in companies across various market capitalization. They are considered to have a diversified profile as mutual funds invest their assets in different money market instruments like equity, debt, call money, treasury bills, government securities, corporate bonds, etc. Mutual funds are listed at the exchange, and it is the duty of the fund manager to buy/sell securities in order to meet the fund’s investment objective.

When you invest in mutual funds, you are entrusting your hard-earned money in the hands of the fund manager. Hence, it is recommended that you do adequate research before investing in any scheme. Mutual funds are categorized depending on market capitalization, risk profile, allocation of assets, investment objective, etc.

There are few investors who do not mind taking the extra risk and opt for equity mutual funds, whereas investors with short term goals invest in debt funds that invest in fixed-income securities. Debt funds are considered less risky because they do not invest predominantly in equity markets. But if you are someone who wants to invest in funds to diversify their mutual fund portfolio with debt and equity instruments, you can consider investing in conservative hybrid funds.

What are Conservative Hybrid Funds?

As per SEBI guidelines, a conservative hybrid fund must invest 10 to 25 percent of total assets in equity and equity-related instruments between whereas, 75 to 90 percent of total assets in debt instruments. It is an open-ended hybrid scheme that invests predominantly in debt instruments but also allots some of its assets to equity-related securities.

Can conservative Hybrid Funds be Suitable for Low-risk Investors?

Conservative hybrid funds are considered to be a lot safer than equity mutual funds. Also, these funds have historically given better results and also have a better risk rewards ratio. These become ideal for low-risk investors simply because conservative hybrid invests very less amount of the total assets in equity related instruments as compared to other mutual funds. They also seem to have a diversified portfolio and invest their assets in both debt and equity instruments. Their investments in equity are what allows these funds to churn higher profits, but because they invest highly in debt instruments, they can a less risky profile.

Because of their unique composition, conservative hybrid funds tend to beat market fluctuations. It is also the reason behind the fund being able to offer consistent returns to its investors. Hybrid funds are actively managed funds which means that they are professionally managed by a fund manager who buys/sells marketable securities to meet the scheme’s objective. Because these are professionally managed, they stand a chance of reaping higher profits as compared to passively managed funds.

But before investing your money, investors are requested to make sure that they invest their money in a fund owned by a reputable AMC. Also, conservative hybrid funds are ideal for investors with a medium to long term goals with an investment horizon of five to seven years. But before you go ahead with any investment decision, it is better to understand the primary purpose of your investment. Because the investment market is flooded with a plethora of mutual fund schemes and hence, you should invest only within your limits and make sure that you regularly invest until you meet your financial goal.