Equity investment comes with risks as stock markets are volatile in nature. This volatility comes from various dimensions. There are Bull phases of Market, when most stocks continue to go up, whereas there are Bear phase, in which reverse happens. There are also Sideline markets in which for prolong period there are almost no returns from larger stock market. Additionally, within the larger market, there are different sectors/industries go through different up down cycle. There are also risks with individual stocks, one quarter bad result can drag the market price of a company significantly. Afraid of these volatilities, many individuals refrain from any type of Equity Market investing and invest in low return Bank Fixed Deposits only.
Mutual Fund industry created solution for this class of investors as well. Hybrid funds are a category of investment in which substantial investment is done both equity(stocks) as well as low risk Debt. Conservative Hybrid Funds are the most suitable fund for such risk avert investors, in which 75-90% investment is done in low risk Debt and only remaining amount in invested in Equity (primarily Largecap stocks).
Because of such portfolio distribution, the returns from these funds remains less volatile. At the same time, over a longer period of time these funds provide better returns than FD or equivalent Debt investments as they offer the equity market exposure. These funds could act as kick-starter for the risk avert investors. After they get more confidence from equity market through such MF investment, they could slowly graduate towards little more aggressive Hybrid funds such as Balanced Funds etc. and eventually to some Largecap Equity funds, which are of moderate risk equity investment.
Following are the some of few picks for the Hybrid Conservative funds based on their historical returns as well as Risk Ratios (Sharpe Ratio and Sortino Ratio) as of 27.11.2024 : Historical returns are rounded up.
Sharpe Ratio: Risk-adjusted returns, how much return is earned per unit of risk taken. A value close to 1 or above is considered good.
Sortino Ratio: A variant of the Sharpe Ratio that focuses only on downside risk. Sortino Ratio above 1.5 is considered good.
(Refer HERE to know more on these risk ratios)
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