Parag Parikh Conservative Hybrid Fund (PCHF) has been among the top-performing funds in the Conservative Hybrid Fund category since its launch in May 2021. Over the last five years, it has delivered a compounded annualised return of 8.4 per cent, against 6.1 per cent for the category average.

Conservative hybrid funds invest 75-90 per cent of their corpus in debt instruments and 10-25 per cent in equities. This makes them suitable for investors seeking a low-to-moderate risk profile with a meaningful allocation to fixed income, including senior citizens and younger investors looking to balance their equity-heavy portfolios.

A three-pronged portfolio

PCHF differentiates itself within the category through its conservative debt portfolio, selective low-beta equity exposure, meaningful allocation to REITs and valuation discipline. The fund currently manages assets worth ₹3,454 crore.

The portfolio is broadly divided among debt, equities and REITs. Equity and REIT exposure are currently around 10-12 per cent each, with the balance invested in debt.

Its equity allocation has remained in the 9-16 per cent range over the last five years, making it one of the three funds in the category that have consistently maintained a relatively-low equity allocation. The other two are from Nippon India MF and Bandhan MF.

The equity strategy is distinctly different from that of the fund house’s pure equity schemes. Given the fund’s emphasis on capital preservation and cash-flow generation, the equity portfolio focusses on low-beta and relatively-less volatile companies with strong cash flows, high dividend yields and the ability to undertake buybacks. Current holdings include ITC, Power Grid, Coal India and Petronet LNG.

The fund does not follow a rigid market-cap allocation strategy. However, its preference for established, cash-generating companies gives the portfolio a natural large-cap bias. Selected mid- and small-cap companies can also find a place if they meet the fund’s investment criteria. Currently, large-, mid- and small-cap stocks account for around 7 per cent, 2 per cent and 1 per cent of the portfolio, respectively.

Stock selection is primarily bottom-up rather than sector-driven. The fund does not have a structural overweight or underweight to any particular sector.

The bias towards low-beta, high-dividend-yield stocks may limit upside relative to peers during a strong bull market. However, this positioning is also likely to provide greater stability and cushion the portfolio during sharp market corrections.

Strong conviction on REITs

REITs are a significant differentiator for PCHF. It is the only fund in the category with a notable allocation of around 12 per cent to REITs.

The fund house believes Grade-A commercial real estate in major cities has favourable supply-demand dynamics, with limited new supply and sustained demand supporting high occupancy levels. REITs have also been able to raise rentals faster than inflation.

According to the fund house, REITs offer distribution yields of 6-6.5 per cent, along with potential capital appreciation and rental escalations. The fund does not currently invest in InvITs as the fund house considers them less attractive.

Debt portfolio

The debt portfolio is deliberately conservative. The fund house does not invest in securities rated below AAA across its debt portfolios. PCHF’s debt exposure consists mainly of sovereign securities, State development loans (SDLs) and select AAA-rated corporate bonds.

Importantly, the fund house supplements external credit ratings with its own internal credit assessment. Of the roughly 50-60 AAA-rated companies in the investible universe, only around 32 are currently on its internally-approved list, providing an additional layer of credit filtering. Major AAA-rated exposures include issuers such as NABARD, Bajaj Finance, LIC Housing Finance and SIDBI.

Within its sovereign exposure, the fund primarily uses SDLs and compares their spreads with corporate bond yields. When corporate bonds offer better relative value, the portfolio can increase its allocation to them, and vice versa. Corporate exposures are generally shorter, at around one-two years, while SDL exposure can extend to three-five years, with the maximum maturity at around six years.

As of September 2026, government securities accounted for 52 per cent of the portfolio, corporate debt - 22 per cent, REITs - 12 per cent, equities - 10 per cent and cash equivalents - 4 per cent. The average portfolio maturity is broadly maintained within the three-five year range.

Performance

The fund has performed relatively well in the recent period. Its preference for low-beta, cash-generating and dividend-paying companies helped limit the downside compared with several peers amid recent market uncertainty. Its early exposure to REITs has also contributed to returns, with the fund manager indicating that most listed REITs have delivered around 12-15 per cent CAGR, including distributions.

Over the past five years, the fund’s three-year rolling returns averaged 11 per cent CAGR, compared with 8.5 per cent for the category. During this period, its three-year rolling returns ranged from 8.3 per cent to 12.7 per cent.

The debt portfolio’s yield to maturity (YTM) stood at 7.7 per cent as of September 2026, marginally higher than the category average of 7.5 per cent.

The fund’s base expense ratio for the regular plan is 0.54 per cent, significantly lower than the category average of 1.5 per cent. For the direct plan, the expense ratio stands at 0.24 per cent, compared with 0.79 per cent for the category.

Published on October 24, 2026