Investment is an important element in financial planning. It is the way to organize funds and direct them towards wealth creation. It is important to realize your financial goals and decide the investments to achieve them in the long run.
 

Investments are also based on the risk appetite. So, if you are looking for consistent returns with very little risk, you are heading towards a conservative fund! There are several benefits associated with a conservative fund. Let us understand them in a little detail. 
 

What is a conservative fund?
 

A conservative fund saves in financial instruments to provide consistent returns. It is invested in two ways. Primarily, it is invested in fixed income securities or the debt funds such as bonds, money market instruments, government securities, etc. And secondly, it is invested in a combination of debt funds and equity funds.
 

How does a conservative fund work?
 

A conservative fund predominantly will have a debt fund and an equity fund for balancing the return and risk. The proportion of debt funds will be between 75% to 90% and the equity fund between 10% to 25%. Thus, a conservative hybrid fund ensures capital preservation by incorporating adequate risk involving instruments for growth without affecting the overall fund value. As a result, it beats inflation with additional growth conservatively. Conservative funds are incorporated in many Mutual Fund schemes and Unit Linked Insurance Plan (ULIP) policies. 
 

Benefits of investing in a conservative fund
 

Apart from ensuring consistent market-linked fixed returns² at minimal risk, a conservative fund also ensures the following benefits:
 

1. More returns opposed to traditional plans - Opposed to traditional savings plans such as a fixed deposit, a conservative fund provides more return to beat inflation with minimal risk.
   
2. Well researched products - Mutual fund schemes and ULIP plan generally provide a conservative fund; it is formed with the right balance of debt and equity funds by expert fund managers and hence, extremely reliable. 
   
3. Conservative hybrid fund taxation^* - A conservative fund concerning a mutual fund such as the ELSS and the ULIP plan qualifies for a tax^* deduction and tax^* exemption under the Income Tax Act, 1961. 
   
   

Who should consider investing in a conservative fund?
 

A conservative fund best suits people who are looking for the following features in their investment plans.
 

1. Lesser risk - If you are the sole earning member in the family and have huge financial commitments at different stages in life, it may be suitable for you to make – savings based on your risk profile. In such cases, investments with consistent returns are preferred.
   
2. Considerable market-linked returns² - If you are a beginner to stock market investing, you will prefer market exposure and returns from a safe horizon. A conservative growth fund will ensure this safety net while allowing you to experience the real stock investment platform.
   
3. Diversification of portfolio - If you seek the diversification of your investment portfolio to balance the risk and returns, a conservative fund is the apt way to start.
   
4. Fixed return - If you are a person nearing your retirement life and have not made any sufficient investments, you look for safe investment opportunities with reduced risk and provide fixed income in the form of dividends. 
    

Every conservative fund investment that is market-linked has a certain amount of uncertainty. It can alter the portfolio when there is a sudden change in the economy affecting the prices.
 

However, if you are looking for extremely safe investment avenues without the market element and guaranteed¹ returns with life cover, the income insurance plan is ideal. It is also called the guaranteed¹ return plan.

Guaranteed¹ return plan

A guaranteed¹ return plan provides dual benefits. It offers life cover, which is the sum assured to your nominee if you meet with an unexpected death and, additionally, guaranteed¹ returns on maturity. As the returns are assured, you can plan for your long-term investments with precision. Also, as the returns are assured, there is no risk involved.
 

Furthermore, it offers different payout options. With Tata AIA Life, the guaranteed¹ returns can be available at maturity as a lump sum amount, a combination of lump sum and regular income or a regular monthly income. The regular monthly income plan is a preferred option for it guarantees¹ regular fixed income, and there is no risk involved.
 

Also, the plan offers customizable features such as flexible premium payment options and choosing the income period and the mode. A regular income plan can be a good product for child saving investment and retirement planning.
 

It is a comprehensive plan that offers life insurance and guaranteed¹ returns. Insurers provide add on rider^# options such as the critical illness rider^#, waiver of premium rider^#, total and permanent disability rider^# etc., making the sum assured payable during medical emergencies for handling the treatment expenses. It is valuable income insurance with no risk.
 

Should You Consider Life Insurance for savings?

Whether or not life insurance should be considered for saving purposes depends on an individual's financial goals and circumstances. Here are a few factors to consider:

• Financial protection: Life insurance is primarily designed to provide financial protection for loved ones in the event of the policyholder's death. If an individual has dependents who rely on their income, life insurance can be a valuable saving to ensure their financial security. In the absence of the insured, the death benefits provide financial protection to their family so that they may sustain their standard of living.
  
• Investment goals: If an individual's primary investment goal is growth and potential for apt returns, life insurance may not be the perfect option. This is because the primary goal of life insurance is to financially secure the future of your beneficiaries in your absence. You may, however, consider other investment vehicles, such as stocks, bonds, and mutual funds, may offer more growth potential.
  
• Time horizon: Life insurance policies, such as whole life insurance, can be a good option for individuals who have a long-term investment horizon and want to accumulate cash value over time. However, for those who have a shorter time horizon and need their funds sooner, life insurance may not be the best investment option.
  
• Tax^* benefits: Some life insurance policies offer tax^*-deferred growth on the cash value, which can be a valuable benefit for those looking to minimize their tax liability. Moreover, the life cover component comes with tax benefits under Section 80C and Section 10(10D) of the Income Tax Act.
  
  

Life insurance can be a valuable tool for some individuals, but it is important to carefully consider one's financial goals, time horizon, and tax^* considerations before planning. An experienced financial advisor can help individuals determine if life insurance is a good savings option for them.

Conclusion
 

A conservative fund is a fund that invests in a combination of debt funds and equity funds that offers steady returns with minimal risk. So, if you are looking for an investment with market-linked returns² with reduced risk, a conservative fund will be an ideal option.
 

And, if you are looking for an investment option with a life cover and guaranteed¹ return with no risk, a guaranteed¹ return plan is a fair option. Choose the right option based on your requirements and financial goals ahead!
 

L&C/Advt/2023/Feb/0507