A Conservative Hybrid Fund holds 75–90% in debt and 10–25% in equity — primarily a debt fund with a small equity component for modest return enhancement.
Conservative hybrid funds are the mirror image of aggressive hybrid funds. SEBI mandates 75–90% in debt instruments (bonds, government securities, money market instruments) and 10–25% in equity. The small equity stake aims to generate returns slightly above pure debt funds, while the dominant debt allocation keeps volatility low. Because equity is below 65%, these funds are taxed as debt funds — LTCG applies after 2 years with indexation benefits for investments made before April 2023.
A conservative hybrid fund is primarily a debt fund with a small dose of equity to boost returns. It's for investors who want slightly better returns than FDs or pure debt funds but can't stomach significant equity volatility. The small equity portion (10–25%) might add 0.5–1% extra return over pure debt across a cycle. Think of it as 90% curd rice with a tiny portion of something spicy on the side.
Debt: 75–90% — government bonds, corporate bonds, money market instruments.
Equity: 10–25% — at fund manager's discretion across any market cap.
Taxed as debt fund since equity <65% — indexation benefit on LTCG after 2 years (pre-April 2023 investments).
Relatively low volatility — drawdowns during equity crashes are cushioned by the large debt portion.