What are Conservative Hybrid Funds

If you are new to investing and are looking for lucrative investment schemes that may help you offer with some capital appreciation, you may need to first learn a thing or two about financial planning. If you are someone who is good with managing money and knows how to keep your expenses to minimum, you are already one step ahead in financial planning. Apart from managing money, you need to also chart out your short term and long term goals and prioritizes them. This can help you implement a strategy and spread your money across investment schemes that hold the potential to offer you some capital appreciation.

Another important aspect about financial planning is being able to identify your risk appetite. Knowing your risk appetite will help you understand what type of an individual you are when it comes to taking market risks. If you are someone who is completely averse to taking risk then you may have to settle with conservative investment tools that offer low fixed interest rates. However if you want to give your financial portfolio an aggressive approach then you may consider investing in mutual funds.

This article covers mutual funds and tries to understand the role and function of conservative hybrid funds. If you are keen on learning a few things about conservative hybrid funds, you may proceed further. But first understand mutual funds in detail.

What are mutual funds?

SEBI, the regulatory body of mutual funds here in India describe them as*, “a mechanism for pooling the resources by issuing units to the investors and investing funds in securities in accordance with objectives as disclosed in the offer document. Investments in securities are spread across a wide cross-section of industries and sectors and thus the risk is reduced.”

What fund houses do is that they collect money from investors who share a common investment objective and invest this pool of funds across the Indian economy in accordance with what the scheme wishes to achieve. This pool of funds is referred to as a mutual fund. The money collected from investors is invested in stocks and other money market instruments like debt securities, corporate bonds, commercial papers, G-sec, call money, etc. Investors are allotted shares in the form of units in quantum with the money invested and depending on the existing NAV of the fund.

What are conservative hybrid funds?

As per SEBI’s norms, a conservative hybrid fund is supposed to invest 10 to 25 percent of total assets in equity and equity related instruments whereas, 75 to 90 percent of total assets in debt instruments. A conservative hybrid fund is an open ended hybrid scheme which invests predominantly in debt instruments whilst allotting a certain portion of its assets to equity related securities.

Benefits of investing in a conservative hybrid fund

Investing in mutual funds has its own pros and cons. Here are some of the benefits of investing in a conservative hybrid funds.

• Conservative hybrid funds are a moderately high risk fund and might be suitable for investors with an investment horizon of more than 2 years.

• Conservative hybrid funds invest predominantly in fixed income instruments and hence might be able to bring stability to an investor’s portfolio.

• Conservative hybrid funds offer the potential for capital gains through limited exposure to equity instruments.

• The investment objective of conservative hybrid funds, with the Mutual Fund Investment App, is to generate regular income through investments in debt and money market instruments, along with capital appreciation through limited exposure to equity and equity-related instruments.

Before you invest in conservative hybrid funds make sure that you keep your financial goal in mind and only if the scheme has the potential you help you achieve your goals, consider investing in it. Conservative hybrid fund invests in equity. Although they invest a small portion, they still invest in equity. And we all know that returns from equity related investments are never guaranteed. So make sure that you track the performance of your fund at regular intervals and rebalance your portfolio if and when needed. Before investing in any scheme, do check for its past performance. Check for its expense ratio and also check whether the fund is owned by a reputable AMC.

If you are someone who is entirely new to investing and doesn’t understand financial planning or are oblivious to the idea of mutual fund investment, do not hesitate to seek some professional help. You may consult a financial advisor or a mutual fund expert who might be able to assist you with your investments in a better way.

*Source - https://www.sebi.gov.in/sebi_data/docfiles/20616_t.html

Mutual Fund Investments are subject to market risks, read all scheme related documents carefully.