Conservative hybrid mutual funds are the gateway to the world of hybrid funds. These schemes invest primarily in debt and a small percentage in equity. As per Sebi norms, conservative hybrid schemes are required to invest 75-90% in debt instruments and 10-25% in equity. These schemes are ideal for investors looking to invest a small portion of their capital in equity for additional returns.
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Conservative hybrid schemes, as the name suggests, are meant for investors with a conservative risk profile.
These schemes are similar to the old monthly income plans or MIPs, which were once very popular. They used to invest a small part of their portfolio in stocks, but their USP, as the name suggests, was a regular income in the form of dividends. However, regular dividends ceased to exist when the market entered a bad phase. That was the end of MIPs. The lesson: don’t rely on hybrid funds to ensure a regular income.
If you are looking for a regular income, it is always better to opt for a systematic withdrawal plan or SWP. However, be careful about the amount you withdraw if you do not want to touch your capital. Always withdraw less than you earn if you want to preserve your capital.
Small, but not minuscule equity exposure
If you want a ready-made plan to help you take on a small exposure to equities, here are our recommended conservative hybrid plans. However, you should always remember, especially if you are investing in stocks for the first time, that stocks are risky. Stocks do not offer predictable or guaranteed returns year after year. They can also lose money during a downturn. In short, it is the risk you are taking when you invest in stocks, even if it is a maximum of 25% of your investment.Read also | Looking for an investment with a strategic selection of assets? These mutual funds offer a return of 14% in 3 months
Canara Robeco Conservative Hybrid Fund has been in the third quartile for the last one month. The scheme had been in the fourth quartile earlier. Please note that the scheme has been a part of our recommended funds for the last one year as well. You don’t have to worry about short-term underperformance. We closely monitor the performance of these schemes and update you about it every month. Follow the monthly updates if you are investing in these schemes.
The best conservative hybrid funds to invest in September 2024
Here is our methodology:
ETMutualFunds has used the following parameters to select the hybrid mutual fund schemes.
1. Moving average returns: Filmed daily for the past three years.
2. Consistency over the last three years: The Hurst exponent, H, is used to calculate the consistency of a fund. The exponent H is a measure of the randomness of a fund’s NAV series. Funds with a high H tend to exhibit low volatility compared to funds with a low H.
i) When H = 0.5, the return series is said to be a geometric Brownian time series. Such time series are difficult to forecast.
ii) When H < 0.5, the series is said to have mean reversion.
iii) When H > 0.5, the series is said to be persistent. The higher the value of H, the stronger the trend of the series.
3. Downside risk: For this measure we have only considered the negative returns contributed by the mutual fund.
X = Returns below zero
Y = Sum of all squares of X
Z = Y/number of days needed to calculate the relationship
Downside risk = square root of Z
4. Superior performance
i) Patrimonial portion: It is measured by Jensen’s Alpha for the past three years. Jensen’s Alpha shows the risk-adjusted return generated by a mutual fund scheme relative to the expected market return predicted by the Capital Asset Pricing Model (CAPM). A higher Alpha indicates that the portfolio’s performance has outperformed the returns predicted by the market.
Average returns generated by the MF Plan =
[RiskFreeRate+BetaoftheMFScheme*{(Averagereturnoftheindex-RiskFreeRate}[Tasalibrederiesgo+BetadelesquemaMF*{(Rendimientopromediodelíndice-Tasalibrederiesgo}[RiskFreeRate+BetaoftheMFScheme*{(Averagereturnoftheindex-RiskFreeRate}
ii) Debt portion: Fund performance: benchmark performance. Daily cumulative returns are used to calculate the fund and benchmark performance and subsequently the fund’s active performance.
5. Asset size: For hybrid funds, the asset size limit is Rs 50 crore.
(Disclaimer: Past performance is no guarantee of future performance.)
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