What Can Conservative Investors Add to Their Mutual Fund Portfolios?

With so many different types of mutual fund categories, every investor can select the ones that best suit their investment objective and risk appetite. For instance, if you are a conservative investor looking for low-risk schemes that can deliver decent returns, you have plenty of options to choose from.Take a look at some of the options that conservative investors can select for their mutual fund portfolio-

Liquid funds are mutual funds that mostly invest in debt instruments such as commercial papers, treasury bills, and deposit certificates (COD). All the instruments held by liquid funds have a maturity of 91 days. While these schemes do not have any lock-in period, they do have an exit load if redemption is made within 7 days from investment.As compared to other debt mutual funds , liquid funds are known to have one of the lowest interest risks as investments are mostly made in securities that generate a fixed income. The shorter maturity of the securities is another excellent benefit for conservative investors.

If you know the basics of the equity markets, you might know that you can purchase shares in the cash or futures segments. You will often see that there are small differences in the cash and futures price of a share. Similarly, the pricing mismatch also occurs between exchanges like BSE and NSE.Arbitrage funds take advantage of such pricing differences to generate profits. While these funds invest in equity, they are still considered very safe as positions are only taken when there is an arbitrage opportunity. Otherwise, the funds are invested in debt and money-market instruments.

The UST or Ultra-Sort-Term funds are another popular type of debt funds ideal for conservative investors. These funds invest your money in short-term debt securities like bonds. However, the maturity of these securities is between 91 to 365 days. Also, it is worth noting that these funds are not as liquid as liquid mutual funds.As the maturity of securities held by UST funds is higher than liquid funds, they are also riskier. But on the other hand, they have a low expense ratio, especially compared to short-term debt funds. This makes them an ideal choice for a conservative mutual fund portfolio.

If you are a conservative investor planning to invest in mutual funds, these are some fund categories that you can consider. But while risk-averse investors prefer these funds, do your own research before investing.Thoroughly understand how these mutual funds work, the maturity of the securities they hold, exit loads (if any), expense ratio, and basic risk profile. Once you've selected a fund category, you can then refine your research by comparing some of the top performers in those categories.

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.