For investors who have a low-risk appetite but still want some equity exposure, conservative hybrid funds can be a good choice.
Mutual funds invest in certain underlying assets to make money for investors like you and me. Equity mutual funds invest in stocks of companies. As the price of these stocks change, the value of your investment appreciates or depreciates. Debt funds invest in debt instruments, such as corporate bonds, government bonds, term deposits, etc. with an aim to reduce risk and provide stable returns.
When both kinds of instruments feature in a single mutual fund, they are called hybrid mutual funds. A conservative hybrid mutual fund invests a majority of its money in debt instruments, and this investment can be up to 90% of its assets while the remaining money is put into equities.
These mutual funds are a good investment option for investors who have a low-risk appetite but look to some equity exposure because a majority of the investments are still in debt instruments, making them relatively safer. At the same time, hybrid mutual funds provide higher returns than other traditional debt investments, such as fixed deposits.
Who are best suited for conservative hybrid funds?
As you may have already guessed, conservative hybrid funds are suited best for low-risk investors. If you are someone who is used to putting your money in fixed deposits, then conservative hybrid funds can be a good diversion. Fixed deposits don’t beat inflation. The equity component in hybrid mutual funds allows you to make investments that can beat inflation.
Hybrid mutual funds provide better returns than fixed deposits while at the same time minimising your risk.
If you are an investor who wants some exposure to equities without making them a big part of your portfolio, these funds can be an ideal choice. Investors with a low-risk appetite who want to see some upside returns from equity investments can choose to invest in conservative hybrid mutual funds.
Another situation in which you can consider investing in hybrid mutual funds is if you are close to retirement. At a young age, you can afford to take on more risks. As you grow older, you want to protect your capital and make investments that can give you stable returns. Conservative hybrid mutual funds can provide you this protection while at the same time provide higher returns than traditional fixed income instruments.
Conservative hybrid mutual funds can be good investment options for those with low-risk appetite seeking some exposure to equities. If you are just starting out with making equity investments, then this class of funds can be a good place to begin. If you are nearing retirement or are already retired, then these funds can be a good addition to your portfolio. Find out more about the various investment options from our financial advisors, who will help you choose the best option for your financial goals.