What are Conservative Hybrid Funds?
As the name suggests, Conservative Hybrid Funds are the type of hybrid mutual funds that follow a conservative investment strategy. They primarily invest in debt securities. These are known as the least risky hybrid funds with 75% to 90% of the assets allocated in debt and money market securities. The allocation of resources in the relatively low risk assets is what makes Conservative Hybrid Funds less volatile.
As per the norms of the Securities and Exchange Board of India (SEBI), a consearvative fund works under a dynamic ratio of debt and equity investments. However, 10% to 20% of the portfolio must be employed into equity.
Features of Conservative Hybrid Funds
- Low Volatility: Conservative Hybrid Funds are known as one of the best investments options especially for investors who are not willing to take any kind of risks and are very cautious about their investments. The ratio of investments in such funds is inclined towards debt securities which makes these funds least risky.
- Better Returns: Conservative Hybrid Funds have been successfully outperforming other types of funds such as the equity savings funds. According to the rolling returns accrued over the last 5-years, category average for Conservative funds was around 9% whereas equity savings managed to get 8% returns
- Accrual Strategy: The fund managers typically engage into accrual strategies as the primary motive of Conservative funds is to obtain a regular income. Under this, debt as well as equity securities are held till the time of maturity, after which the interest paid by the securities are collected.
When an accrual strategy is employed, the changes in interest rates do not affect the returns accrued on the securities.
- High Credit Quality: In order to generate stable and consistent income, it is ensured that the credit quality of debt portfolios is high. High credit quality also leads to minimum downturn risks.
- Methodical Allocation of Assets: Where the investments into equities are concerned, the fund managers are engaged into intrinsic strategies. During inexpensive equity valuations, there is an increased exposure to asset allocation whereas when the equity valuation is expensive, the asset allocation is decreased accordingly.
List of Top Performing Conservative Hybrid Funds in India
Here is a list of some of the best mutual funds in India under Conservative funds category:
|Funds||AUM (Crore)||3-Year Returns||5-Year Returns|
|ICICI Prudential Regular Savings Fund||Rs.1642||8.45||10.25|
|UTI Regular Savings Fund||Rs. 2,412||5.74||8.11|
|Tata Retirement Savings Fund||Rs. 131||7.61||9.60|
|BNP Paribhas Conservative Hybrid Fund||Rs. 397||8.05||9.59|
|Kotak Debt Hybrid Fund||Rs. 252||6.83||9.26|
|HDFC Retirement Savings Fund||Rs. 67||7.85||–|
(Data as on September 05, 2019; Source- Value Research)
Tax Treatment for Conservative Hybrid Funds
As compared to other fixed income schemes such as Fixed Deposits or Small Saving schemes by the Government, Conservative Hybrid funds are relatively more tax efficient.
- In mutual funds, the tax is not deducted at source like in the case of Fixed Deposits.
- For short-term investments in Conversative Hybrid funds, the tax is deducted as per the income slab of the investor whereas for long-term investments in the fund, the capital gains are 20% taxable with the benefit of indexation.
Henceforth, Conservative Hybrid funds are proved to be much more efficient than FDs in terms of tax treatment for the investors falling in higher tax bracket i.e, 20% to 30%.
Conservative Hybrid Funds do not just give chiefly returns in long term but are also proven tax efficient. Where stability and consistency of income is concerned, Conservative Hybrid funds excellent choice for investors.
List of Conservative Hybrid Funds in India
Source: Value Research, Data as on September 17, 2019