Conservative Investors in India rely heavily on Fixed Deposits (FD), Recurring Deposits (RD), Post Office Savings Schemes (POSS), and other traditional investments for investing their savings. These instruments are safe, and offer a peace of mind to the investor, but in today’s high inflation world, their returns often fall short of preserving long-term purchasing power.
For example, you want to invest ₹10 Lakhs for the education costs of your child who will get into college 10 years later. You invest this money into a Fixed Deposit giving you 8% returns. By the time your child is ready for college, ₹10 Lakh cost would have grown to ₹25.93 Lakhs while the money invested in FD has grown only till ₹22.08 Lakhs; which is a shortfall of about ₹4 Lakhs which you will have to pay out of your own pocket.
So, do you have to choose Growth over Safety because of this? Good news is no, because through mutual funds you can cover both as they offer fund types that suit even conservative investors. Today we discuss Top 3 Mutual Fund types for Conservative Investors who want to maintain a healthy balance between risk and reward.
Balanced Advantage Funds or Dynamic Asset Allocation Funds
Balanced Advantage Funds (BAFs) also known as Dynamic Asset Allocation Funds (DAA) are funds that are designed to invest in Equity and Debt dynamically. They adjust the allocation between debt and equity from 0% to 100% based on market conditions. If the fund manager believes equity is overvalued or volatile, they can reduce equity allocation up to 0% and allocate up to 100% in debt. This brings down the downside risk and volatility. On the other hand, during phases when equity is looking strong over debt, fund manager can also increase allocation in equity to gain exposure and earn returns. BAF is suitable for investors who want controlled exposure to equity, lower downside risk during market corrections, and/or equity like tax treatment with reduced equity based volatility.
Multi Asset Allocation Funds
Multi Asset Allocation Funds invest in at least 3 asset classes – usually equity, debt, and gold while maintaining at least 10% in each asset class. MAFs carry an inbuilt diversification feature which helps spread the risk of any particular asset or reduce the impact of a particular asset underperforming. MAFs can also hold Cash & Cash Equivalents as an asset class when other asset classes do not look attractive which is also an added feature for safety.
This interplay of asset classes bring stability to the portfolio, which is exactly what conservative investors seek. MAF is suitable for investors who doesn’t want to rely on just one or two asset class, want to add a layer of protection by investing in gold or other commodities, and/or want to dynamically rebalance asset class based on market opportunities.
Conservative Hybrid Funds
Conservative Hybrid Funds invest dynamically in equity and debt while maintaining a fixed range for these asset classes. The range is 10% to 25% in equities and 75% to 90% in debt depending on the market outlook of the fund manager. The low investment in equity help these funds maintain stability and offer capital protection while also offer potential higher returns than pure debt funds. Ideal for investors who want to start gaining exposure to equity or someone who is looking to preserve their capital.
Let us look at the performances of all these categories too as compared to Equity Fund Performance.
| Fund Category | 1 Year Return | 3 Year Return | 5 Year Return | Standard Deviation | Sortino Ratio |
|---|---|---|---|---|---|
| Equity: Flexi Cap | 4.44% | 19.78% | 21.76% | 13.07 | 1.41 |
| Equity: Large Cap | 1.81% | 17.67% | 19.97% | 13.70 | 1.13 |
| Dynamic Asset Allocation | 5.78% | 14.76% | 14.63% | 7.72 | 1.59 |
| Multi Asset Allocation | 9.06% | 18.13% | 18.09% | 7.54 | 1.96 |
| Conservative Hybrid | 7.89% | 10.97% | – | 4.03 | 1.44 |
Source: Value Research, EduFund Internal Research. Return Data as on 21 July 2025. Other Data as on 30 June 2025.
As you can observe these funds deliver higher returns than traditional debt investments while also maintaining lower risk as observed through lower Standard Deviation. Also, when we compare the risk adjusted returns through Sortino Ratio, these funds perform even better than equity funds.
Bonus Idea: Build a Blended Portfolio Customised to your Needs
If you are a conservative investor looking to build your wealth sensibly, you don’t have to select just one of the available funds and invest there. You can also create your own portfolio by customising it as per your objectives from the available categories of mutual funds.
Let’s say for example, you do not want to select the preset of the hybrid funds, you can build your own Mutual Fund Hybrid Portfolio by investing:
- 40% in a Flexi Cap Fund
- 20% in a Gilt Fund
- 20% in Corporate Bond Fund
- 20% in Gold Fund or Gold & Silver Fund.
This is just an example of how you can create your own portfolio by blending various Mutual Fund Categories. Explore your own portfolio composition by tweaking these proportions based on your Investment Horizon, Risk Appetite, and Goals.
Final Thoughts
In today’s age, Conservative investors no longer need to rely on traditional investment options to invest their money. Mutual Funds like Dynamic Asset Allocation, Multi Asset Allocation, Conservative Hybrid offer investors the perfect middle ground – growth with stability. By using these funds, you can keep your investments aligned to your comfort zone while still aiming to beat inflation and build a secure future.
Disclaimer: The data in this presentation are meant for general reading purpose only and are not meant to serve as a professional guide/investment advice for the readers. This presentation has been prepared on the basis of publicly available information, internally developed data and other sources believed to be reliable. Whilst no action has been suggested or offered based upon the information provided herein, due care has been taken to endeavor that the facts are accurate and reasonable as on date. The information placed on the presentation is for informational purposes only and does not constitute as an offer to sell or buy a security. The Company reserves the right to make modifications and alterations to the content available on the presentation. Readers are advised to seek independent professional advice and arrive at an informed investment decision before making any investment. The EduFund platform & the website is owned, operated and maintained by Helena Edtech Private Limited, a company incorp orated under the laws of India. An affiliate of the Company, i.e. Edubillions Tech Private Limited is registered with AMFI as mutual fund distributor bearing the registration number ARN258733. Investment in securities market are subject to market risks, read all the related documents carefully before investing. The valuation of securities may increase or decrease depending on the factors affecting the securities market.
About the author
Niraj Satnalika
Head Of Research,EduFund
Dr. Niraj is a finance professional with 12+ years of experience and is part of the founding team at EduFund. He’s worked with Goldman Sachs, CRISIL and Sakal Media in roles spanning investment management, research and leadership. With a PhD in Finance from IIT Bombay, he brings deep expertise in valuation, governance and education planning. When he’s not teaching or writing, you’ll find him cooking or going on long drives.
