What are conservative mutual funds?Conservative mutual funds are hybrid funds that invest in a mix of debt and equities. As these funds are designed specifically for risk-averse investors, the portfolio of debt instruments is considerably higher (around 75 to 90 percent) as compared to equity. The small exposure to equity is meant to provide better returns to the investor than pure debt schemes.
Important features of conservative funds
- Less risky Conservative funds allocate 75 to 90 percent of their portfolio to debt securities and money market instruments. Hence, they are considered less risky than equity funds and are more suited for investors with a low risk appetite.
- High returns Though conservative funds are relatively safer instruments, they have the capability to provide inflation-beating returns. This is because these funds also allocate a part of the investment to equity which helps in capital appreciation.
- Taxation rules Conservation funds are taxed as per the applicable taxation rules for any other mutual fund schemes. If these funds are held for less than 3 years, returns are taxed as short-term capital gains whereas in case they are held for more than 3 years, taxation rules for long-term capital gains are applicable.
Should you invest in conservative funds?Conservative funds are purely based on the principle of capital preservation over high returns. Therefore, if you’re a risk averse investor who is looking to make decent gains without taking too much risks, you can invest in conservative funds. Also, if you’re nearing your retirement or have already retired, conservative funds can be the best bet for you to invest in.
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The information contained herein is generic in nature and is meant for educational purposes only. Nothing here is to be construed as an investment or financial or taxation advice nor to be considered as an invitation or solicitation or advertisement for any financial product. Readers are advised to exercise discretion and should seek independent professional advice prior to making any investment decision in relation to any financial product. Aditya Birla Capital Group is not liable for any decision arising out of the use of this information.
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