Conservative Mutual Fund

Conservative hybrid mutual funds are an open-ended hybrid scheme that predominantly invests in debt instruments and rest in equity instruments. As per Securities and Exchange Board of India (SEBI) the allocation are as following: 

• Debt Instruments- Invests 75% to 90% of its portfolio in debt instruments. 
• Equity Instruments- Invests 10% to 25% in equity and equity-related instruments. 

Since this fund invests primarily in debt, making it instrumental in reducing portfolio volatility. Additionally, with some exposure to equity, investors have the potential for better returns on their investments. These funds are appropriate for investors with a moderate risk appetite. 

When you invest, your money is pooled with other investors and managed by a fund manager. The manager allocates it across debt, money market instruments and equity based on the fund’s strategy.

The debt portion aims to generate relatively stable income, while equity provides capital appreciation potential. The manager monitors and rebalances the portfolio based on market conditions. Thus, the fund can earn through interest income from debt and capital gains from equity, but returns are market-linked and not guaranteed.

Conservative hybrid mutual funds can be suitable for the following investors:

• Investors seeking debt with some growth: Those who prefer higher debt exposure but want some equity exposure for capital appreciation, with relatively lower volatility than pure equity funds. 
• Investors with a moderately high risk appetite: Those comfortable with some market fluctuations and short-term losses but want to avoid the higher volatility of equity-heavy funds. 
• Investors with a medium-term investment horizon: Suitable for those who can stay invested for around 3-5 years and give the debt and equity components time to perform across different market conditions.

Follow the steps below to start investing in conservative hybrid funds:

• Open the Paisabazaar app and log in
• Click on “Mutual Funds” under ‘Investments Products’
• Browser and choose conservative hybrid fund based on your risk appetite and goals
• Choose either SIP or lump sum as your investment mode
• Complete your KYC verification to start investing in Conservative Hybrid Funds.

As Conservative Hybrid Funds have a higher allocation to debt instruments, their tax treatment is generally similar to debt funds. 

Units purchased on or after 1 April 2023

For all fresh purchases or SIP installments made on or after this date, the gains are generally considered as Short-Term Capital Gain (STCG) irrespective of how long you hold the units. STCG is taxed at your applicable income tax slab. 

Units purchased before 1 April 2023

It splits the gains into 2 categories based on how long you hold them before redeeming: 

• Short-Term Capital Gain (STCG)- If you sell the units within 12 months for listed securities and 24 months for unlisted securities, the gains are treated as STCG and taxed at your income tax slab.  

• Long-Term Capital Gain (LTCG)- If you sell the units after 12 months (listed) and 24 months (Unlisted) the gains are treated as LTCG and taxed at 12.5% without indexation benefits.  

Dividend (IDCW) Tax

Dividends received from these funds are considered part of the investor's income. Therefore, they are taxed according to the investor's income tax slab, if the amount exceeds Rs 10,000 in a financial year, a 10% TDS (Tax Deducted at Source) may also be applicable.