ADVICE TO FIRST TIME INVESTORS

Why conservative hybrid funds are suitable for first time or risk averse investors? 

Simple asset allocation maths will demonstrate why conservative hybrid funds are suitable for first time investors.

 Let us assume that a conservative hybrid fund has 80% allocation to debt and 20% allocation to equity. 

 Let us assume the debt as an asset class gives 7% annualized return. 

 So in a year, the debt portion of the fund will contribute 5.6% to the fund’s returns. 

 If the equity return is 15% in a year, then the equity portion will contribute 3% to the fund’s returns. 

 So the overall return will be 8.6%. 

 Let us now assume that in the next year, equity market fell by 20%. 

 In that year, the return of the equity portion of the fund will be -4%, but the return of the debt portion will be 5.6%. 

 So the return of the hypothetical conservative hybrid fund will be 1.6% (5.6% - 4%) i.e. the return is still positive despite the large correction in equities. 

 You can see that conservative hybrid funds can limit downside risk of investors in bear markets. 

 Stability is a very important factor in investor experience because behavioural biases in the extreme volatility can lead the investor to make decisions, which harm their long term financial interests.

 Over sufficiently long investment tenures, conservative hybrid funds have the potential of generating inflation beating returns. 

  One such example is SBI Conservative Hybrid Fund. 

 SBI Conservative Hybrid Fund has a track record of more than 23 years with an AUM base of more than Rs 10,000 crores as on 31st August 2024 (source: SBIMF Fund Factsheet). 

 The fund has outperformed its benchmark index (Nifty 50 Hybrid Composite Debt 15:85 Index) over different investment periods.

Who should invest in SBI Conservative Hybrid Fund? 

1. Investors who want to get higher returns than traditional fixed income investments without taking high risks. 

 2. Investors with moderate to moderately high risk appetites. 

 3. First time investors can invest in this fund with long investment horizon. 

 4. Investors who have at least 3 – 5 years investment horizon. 

 5. Investors should consult with their financial advisors or mutual fund distributors before investing in SBI Conservative Hybrid Fund. 

 Mutual Fund Investments are subject to market risk, read all scheme related documents carefully