Mutual Fund the Best Investment Option for Conservative Investors

Introduction

The term 'Mutual Fund' evokes awe and happiness. For some, it is the best investment instrument to park their capital, earn high returns, and fulfill their cherished financial goals. However, some others consider mutual funds highly risky. They feel apprehensive for a reason - some mutual fund schemes invest in stocks, and since stocks move unpredictably, they apprehend losing their capital.

If you consider yourself a conservative investor who does not like taking risks and yet wishes to invest in mutual funds, you are in the right place. Grab a cozy seat and go through this informative article as we answer conservative investors' most commonly asked questions about mutual funds. You will also learn about the importance of AUM in mutual funds and tips to choose the best mutual fund schemes for conservative investors.

How Popular Are Mutual Funds?

To understand this question, you need to look at the Asset Under Management or AUM in mutual funds. As of August 2021, the total AUM in India's mutual fund industry is INR 36.59 Trillion, a five-fold increase from a measly INR 6.97 Trillion in August 2011. The factors that led to this meteoric rise include a booming economy, rising GDP (Gross Domestic Product), an increase in people's purchasing power and disposable income, and the sizeable growth of the capital and secondary markets.

The fact that there are more than 10.8 crores (of which retail investors hold 8.95 crores) mutual fund accounts further proves the popularity of mutual funds in India. Hence, whether you are an aggressive or a conservative investor, you can always get a mutual fund exclusively tailored for your needs. 

Which Mutual Fund Schemes Are The Best For Conservative Investors?

Although Indian mutual fund houses offer various schemes like equity, debt, hybrid, aggressive, income, fixed maturity, ELSS, and capital protection funds, not all schemes suit conservative investors. The following are the best mutual fund schemes for conservative investors. Incidentally, these are also the ones with the most AUM in mutual funds in this category. 

1. Debt Funds

Debt funds are the most popular choice for conservative investors. These funds primarily invest in sovereign and corporate bonds, government securities (gilts), debentures, and other money market instruments. Debt fund managers usually invest 65% to 70% of the total investment under the scheme in debt instruments and the remaining in equity or cash. These funds are less volatile than pure equity funds and suit conservative investors well. A significant chunk of the net AUM in mutual funds goes towards this category. 

2. Income Funds

Income funds aspire to provide you with a regular income supplementing your monthly income. These funds generally invest in stocks with a high dividend yield, Certificate of Deposits, government securities, corporate bonds, or money market instruments. Retired professionals often choose an income fund to supplement their post-retirement income. 

3. Balance Fund

As the name suggests, a balanced fund provides growth and regular income. These funds usually invest 40% to 60% each in debt and equity instruments. Although the volatility in these funds is lesser than pure equity funds, the capital growth might be affected due to the inverse relationship of equity and debt markets. Generally, when the equity market rises, the debt market falls and vice versa. 

4. Liquid Funds

Liquid funds are well-suited for investors looking to park their money for the short term. They choose these funds since these funds often provide marginally higher returns than bank fixed deposits. Liquid funds typically invest in money market instruments like treasury bills and commercial papers and are considered risk-free. 

5. Gilt Funds

You may also invest in gilt funds if you want capital protection. These funds invest in government securities and do not carry any credit risks. However, if the interest rates come down, you may have to suffer a loss. 

Now that you know the best mutual fund schemes for conservative investors, let's understand why you must check the AUM in mutual fund data before investing. 

Should You Evaluate the AUM in Mutual Fund Data Before Investing?

Evaluating the AUM in mutual fund data is an absolute necessity when you want to find the best Asset Management Company. AUM in mutual funds can come to your rescue when you feel lost amidst the flurry of product brochures, marketing calls, attractive advertisements, and expert advice.

As a rule of thumb, the AUM in mutual fund data shows investors' interest in the AMC. If the company has generated consistent profits for its investors, the AUM will most likely be high. But, if the company shows a lackluster performance, investors will pull out their money, and the AUM will come down.

Hence, before investing in a mutual fund scheme, you must check the AUM in mutual funds and take the right decision.

Should Conservative Investors Invest in Mutual Funds?

If you consider the AUM in mutual fund data, you can easily understand that mutual fund is one of India's most popular investment instruments. Mutual funds offer stability, high returns, and liquidity. You can conveniently visit websites like 5paise and invest in a mutual fund. Also, unlike fixed deposits or sovereign saving schemes, you can withdraw your investment anytime you want. So, the bottomline is that conservative investors can invest in mutual funds and earn high returns sans many risks.