Fixed deposits (FDs) are known for their stability, with returns usually ranging between 7-9%. However, after adjusting for inflation—currently around 4%—the real value of FD returns drops significantly. For risk-averse investors seeking slightly higher returns without exposing themselves to too much risk, conservative hybrid mutual funds are becoming a popular alternative.
These funds balance safety and growth by investing mainly in debt instruments, with a small portion allocated to equities, offering a more promising return than traditional FDs.
What Makes Conservative Hybrid Funds a Better Alternative?
Conservative hybrid funds invest 75-90% of their corpus in debt securities like bonds and government instruments. The remaining 10-25% is invested in equities, offering potential growth. This combination creates a portfolio that is stable yet capable of outperforming inflation.
While the equity portion introduces some risk, it also allows these funds to generate better returns compared to FDs. In the last year, the top-performing conservative hybrid funds delivered returns between 15-19%—a significant jump from FD rates.
Comparison Between FD and Conservative Hybrid Funds
| Parameter | Fixed Deposit (FD) | Conservative Hybrid Fund |
| Returns | 7-9% | 15-19% |
| Inflation Impact | Affected (Net ~3-5%) | Inflation-beating returns |
| Risk Level | Very Low | Low to Moderate |
| Liquidity | Premature withdrawal penalties | Flexible exit options (with exit loads) |
| Taxation | Interest taxed fully | Indexation benefits after 3 years |
List of Top Conservative Hybrid Funds in 2024
These 11 conservative hybrid funds have delivered impressive returns over the past year:
- Kotak Debt Hybrid Fund (Direct)
- 1-Year Return: 19.70%
- AUM: Rs. 2,986.91 crore
- HSBC Conservative Hybrid Fund (Direct)
- 1-Year Return: 19.51%
- AUM: Rs. 135.89 crore
- UTI Conservative Hybrid Fund (Direct)
- 1-Year Return: 17.51%
- AUM: Rs. 1,663.48 crore
- Parag Parikh Conservative Hybrid Fund (Direct)
- 1-Year Return: 16.88%
- AUM: Rs. 2,277.63 crore
- HDFC Hybrid Debt Fund (Direct)
- 1-Year Return: 16.63%
- AUM: Rs. 3,324.79 crore
- DSP Regular Savings Fund (Direct)
- 1-Year Return: 16.42%
- AUM: Rs. 180.78 crore
- ICICI Prudential Regular Savings Fund (Direct)
- 1-Year Return: 15.81%
- AUM: Rs. 3,209.64 crore
- Franklin India Debt Hybrid Fund (Direct)
- 1-Year Return: 15.52%
- AUM: Rs. 215.18 crore
- SBI Conservative Hybrid Fund (Direct)
- 1-Year Return: 15.42%
- AUM: Rs. 10,145.55 crore
- Baroda BNP Paribas Conservative Hybrid Fund (Direct)
- 1-Year Return: 15.35%
- AUM: Rs. 750.83 crore
- Canara Robeco Conservative Hybrid Fund (Direct)
- 1-Year Return: 15.27%
- AUM: Rs. 970.09 crore
Who Should Invest in Conservative Hybrid Funds?
Conservative hybrid funds are best suited for:
- Retired or near-retirement individuals: Those looking for better returns than FDs but with minimal risk exposure.
- First-time mutual fund investors: People who want to try mutual funds but are not comfortable with high equity exposure.
- Risk-averse investors: Those aiming for inflation-beating returns without exposing their entire portfolio to market risks.
Key Benefits of Investing in Conservative Hybrid Funds
- Balanced Portfolio: The majority of the corpus is invested in debt instruments, ensuring stability, while equity exposure offers growth potential.
- Inflation-beating Returns: With returns in the range of 15-19%, these funds help maintain and grow wealth over time.
- Tax Advantages: Long-term capital gains are taxed favorably with indexation benefits if held for more than 3 years.
- Liquidity with Flexibility: Compared to FDs, these funds offer easier access to your money, though some exit loads may apply.
Things to Keep in Mind Before Investing
- Market Risk: While safer than equity-heavy funds, conservative hybrid funds can still experience some volatility due to their equity component.
- Exit Loads: Some funds may charge exit loads if investments are withdrawn within a specified period.
- Investment Horizon: A longer investment horizon (3-5 years) is recommended to maximize returns and enjoy tax benefits.
Conservative hybrid funds present an attractive opportunity for those seeking safer alternatives to FDs with the added benefit of inflation-beating returns.
