Those who wish to achieve their life’s long term goals like retirement planning, buying a weekend home, planning their daughter’s destination wedding or sending their children overseas for foreign education should invest in mutual funds. Although there are conservative schemes that carry a low risk profile as compared to mutual funds, the capital appreciation they offer is nowhere as compared to what mutual funds offer. Mutual funds have several advantages over traditional investment avenues. They invest in a diversified portfolio of assets depending on the nature of the scheme and its investment objective. One unit of a mutual fund is a combination of various stocks and money market instruments. It gives investors an opportunity to seek capital appreciation from various sectors and industries through one single investment.
However, before investing in market linked schemes like mutual funds one should always determine their appetite for risk. Depending on your risk appetite, investors should diversify their mutual fund portfolio with equity and debt asset class. However, if you are keen on investing in a mutual fund that invests in both equity and debt classes one can invest in consider investing in conservative hybrid funds.
What are conservative hybrid funds?
As per market regulator SEBI (Securities and Exchange Board of India), a conservative hybrid fund must invest 10 to 25 per cent of total assets in equity and equity related instruments between whereas, 75 to 90 per cent of total assets in debt instruments. It is an open ended hybrid scheme which invests predominantly in debt instruments but also allots some of its assets to equity related securities.
Benefits of investing in conservative hybrid funds
The biggest advantage of a conservative hybrid fund is that invests in both equity and as well as debt instruments. The equity portion gives investments an opportunity to earn capital appreciation whereas the debt aspect gives investments cushion from volatile markets. It is less likely for both equity and debt securities to underperform in tandem. This is the reason why conservative hybrid funds are known for their unique and well diversified investment portfolio.
Invest with either SIP or one time lumpsum
If you have lumpsum cash at your disposal then you can make a onetime payment in conservative hybrid funds. When you make a lumpsum payment, you are allotted units in quantum with the investment amount and depending on the fund’s existing net asset value (NAV). However, if you want to give your conservative hybrid funds a systematic approach then you can opt for a Systematic Investment Plan (SIP) instead. SIP allows investors to make small payments towards their hybrid fund investments. However, the investment amount should not be lesser than the minimum investment amount mentioned in the offer document.
Who should invest in conservative hybrid funds?
Before investing in conservative hybrid funds investors should understand that these are mutual funds that carry a high risk profile. Depending on your risk appetite you should decide how much money should be allotted to conservative hybrid fund investments. Those seeking to fulfil their life’s long term financial goals can consider investing in conservative hybrid funds. That’s because since these funds invest in equity, they need a long term investment horizon to show their true potential. Equity funds have the tendency to fluctuate as per daily market vagaries. But over the long term, these investments can even beat inflation. So, if you are someone with a long term investment horizon and high risk appetite you can consider investing in conservative hybrid funds. However, one should consult a mutual fund advisor before investing.