Conservative Allocation Mutual Funds

Conservative allocation mutual funds are ideal options for investors having lower risk tolerance. If you are an investor who prefers stability over high risk returns, then conservative mutual funds can be the best fit. These mutual funds invest a larger proportion of the funds into the debt instruments and a smaller portion into equities to provide better returns than fixed income instruments.

What are Conservative Allocation Mutual Funds?

Conservative allocation mutual funds fall into the hybrid mutual funds category that makes investment in both equity and debt instruments. The fund manager of these funds primarily focuses on debt securities, with around 75% to 90% of the portfolio. The debt instruments include government securities, corporate bonds, and treasury bills. The remaining portion is invested into equities.

The debt component ensures reduction in market volatility, whereas the equity component creates an avenue for appreciation of capital over time. Hence, these mutual funds are ideal for investors seeking moderate returns but not subject to higher market volatility.

Feature of Conservative Allocation Mutual Funds

• Low to Moderate Risk: These funds have relatively lower risk than equity mutual funds since most of the investment is done in debt instruments.
• Balanced Portfolio: The combination of debt and equity makes these funds balanced in terms of security and performance, making them ideal for conservative investors.
• Professional Fund Management: Experienced fund managers actively manage the portfolio by selecting quality debt and equity investments to maximize returns while managing risk.
• Better Return Potential: As compared to the conventional savings account or fixed deposit options, Conservative Allocation Mutual Funds can earn better results.

How to Invest in Conservative Allocation Mutual Funds?

You can invest in conservative allocation mutual funds by following simple process:

Step 1: Choose investment mode. You can invest through:

• AMC websites
• Online investment platforms provided by stockbrokers
• Mutual fund distributors

Step 2: Choose a suitable conservative allocation mutual fund.

Step 3: Choose between Systematic Investment Plan (SIP) and Lump sum based on your goal and make investment.

Step 4: Make payment through UPI, netbanking or other available methods.

Why to Invest in Conservative Allocation Mutual Funds?

• Low Market Risks: These mutual funds are not influenced by changes in the stock market since most of the investments are made in debt securities.
• Suitable for Conservative Investors: If you are uncomfortable with high market risk but still want better returns than traditional investment options, these funds offer a suitable balance.
• Wealth Creation in the Long Run: The equity component aids in creation of wealth whereas the debt component adds stability.
• Portfolio Investment: Instead of investing in a single asset, your money is diversified across multiple securities, reducing overall investment risk.

Taxation of Conservative Allocation Mutual Funds

• Units Purchased on or After April 1, 2023: These units are considered specified mutual fund units if their exposure is below 35%. The total gains are taxable as per the income tax slab, irrespective of how long the investment has been held. No LTCG or indexation benefits apply.
• Units Purchased Before April 1, 2023: If the units are sold within 36 months, the gains will be taxable as per the income tax slab. If it has been held for over 36 months, then the gains are taxable at 12.5%. Indexation benefits are not available.