Suppose you want to invest in hybrid mutual funds and benefit from the diversification they bring in without increasing your portfolio risk too much. In that case, conservative hybrid funds may be your ideal choice. The name itself gives you a fair idea of the level of risk that these funds carry, but before you invest in them, you need to know all the essential details of these investment vehicles.
A hybrid fund is any mutual fund that invests in a mix of both debt and equity. In addition to these two asset classes, hybrid funds may invest in cash and cash equivalents, money market instruments, or gold.
Conservative hybrid funds are a type of hybrid mutual fund. These funds invest most of their assets in debt and fixed-income instruments. The defining feature of conservative hybrid mutual funds is that around 75% to 90% of the assets are invested in debt securities. The remaining portion - around 25% to 10% of the portfolio - consists of equity and, occasionally, other asset classes.
Investments from different investors are pooled together to create a collective corpus for the conservative hybrid fund. This corpus gets invested in debt and equity investments per the fund's objectives. The fund is then divided into a certain number of units, and each unit is assigned a net asset value (NAV) based on the net assets of the fund. The formula used for this is as follows:
NAV Per Unit = Net Assets in the Mutual Fund ÷ Total Number of Units
So, if the net assets in the fund amount to Rs. 1 crore, and if there are 10 lakh units in the fund, the fund's NAV will be Rs. 10. After that, each investor will be allotted a certain amount of funds based on their invested amount. And as the value of the assets in the fund's portfolio changes, the NAV per unit will also fluctuate. In turn, the value of investments made by each investor will also increase or decrease, leading to profits or losses.
As the portfolio of these mutual funds consists predominantly of debt-oriented assets, they get taxed in a manner that is similar to the taxation of pure debt funds. The tax rates on the gains from conservative hybrid funds will be as follows, depending on the nature of the profits.
These are the gains you make if you sell your mutual fund holdings within 3 years of investment. STCG is added to your total income and is taxed according to the income tax slab rate applicable to you.
These are the gains you make if you sell your mutual fund holdings after 3 years or more from the investment date. LTCG on conservative hybrid funds gets taxed at 20%, along with indexation benefits.
Conservative hybrid funds benefit investors interested in exploring low-risk equity investments, seeking higher returns while maintaining safety, or planning for retirement.
Equity enthusiasts: If you want to increase your equity exposure but are concerned about the high risks of direct equity investments, conservative hybrid funds are a good starting point.
Seekers of higher returns with lower risks: Conservative hybrid funds offer a solution if you're looking for higher returns compared to fixed deposits and similar schemes.
Investors nearing retirement: For those approaching retirement age who want to preserve their capital while earning above-average returns, conservative hybrid funds can be a suitable choice. The significant allocation to debt securities helps protect capital, while the minor equity component allows for potential growth until retirement.
conservative hybrid funds offer a balanced approach to investing, combining the stability of debt instruments with the growth potential of equity. They allow investors to diversify their portfolios and minimize risk while aiming for higher returns. Whether you are a novice investor or approaching retirement, conservative hybrid funds offer a unique investment avenue worth exploring.
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A conservative hybrid fund is a mutual fund that invests in a mix of debt and equity, with a predominant focus on debt instruments. It makes it a low-risk investment option while still offering the potential for higher returns.
The best conservative hybrid fund depends on individual preferences and investment goals. Factors such as investment horizon and return priorities play a role. Some trending options in India include DSP Flexi Cap Fund, Kotak Debt Hybrid Fund, SBI Conservative Hybrid Fund, HSBC Regular Savings Plan, and Canara Robeco Conservative Hybrid Fund.
Conservative hybrid funds are suitable for investors who want to venture into equity investments with a balanced approach. These funds balance capital preservation and market-linked returns, making them ideal for those seeking safety and growth potential.
