What are conservative hybrid funds?
Conservative hybrid funds mostly invest in fixed income securities. According to SEBI guidelines, the fund should invest 75 per cent to 90 per cent of its entire assets in debt securities. The remaining 10 per cent to 25 per cent of total assets can be allocated to equities and equity-related instruments. A conservative hybrid fund invests a majority of its corpus in fixed income investments to provide investors with a consistent return. It also invests in equities to increase the portfolio's return.
What kind of returns can you expect?
Conservative hybrid funds invest a major chunk of their assets in fixed-income securities, with only a minor portion in equities. The goal of these products is to provide returns greater than bank fixed deposits. As a result, you can expect slightly more than eight per cent from these funds.
What are the underlying risks?
A major portion of the corpus of conservative hybrid funds is invested in debt securities. These funds have limited exposure to equity and, therefore, these may not be influenced by stock market volatility. However, since these funds invest in debt securities with varying maturities, they may be influenced by interest rate swings. These funds also invest in lower-rated papers in order to increase the portfolio's return. Therefore, when compared with higher-rated assets, the low-rated papers may raise the chance of a default or downgrading.
What investment horizon is suited for conservative hybrid funds?
You can invest in conservative hybrid funds with a three-year time horizon. It is an excellent investment for achieving your short-term financial objectives.
Who should invest in them?
If you have low risk tolerance, you may want to consider investing in a conservative hybrid fund. If you have a two to three-year investment horizon, you can invest in conservative hybrid funds. To meet your short-term financial objectives, you might invest in conservative hybrid funds. If you want a limited amount of equity exposure in your portfolio, conservative hybrid funds are an
excellent choice. These funds may provide returns higher than a pure debt fund. If you expect higher returns than a bank fixed deposit, you can invest in a conservative hybrid fund. However, because it has a modest exposure to equities, the investment is riskier than bank fixed deposits.