For investors nearing retirement, wealth preservation becomes just as critical as wealth creation. At this stage, it makes sense to gradually move away from high-risk assets such as equities and within that, mid- and small-cap funds and shift towards more stable options which will not expose you to large draw-downs from your capital. This transition lowers portfolio volatility and shields your hard-won retirement savings from sharp market downturns. Such a switch should also be targeted at reducing sequence-of-returns risk, where poor returns in the early years of retirement permanently erode your capital and compromise long-term financial security.
Below are four types of mutual funds you should look at in the home stretch to retirement — conservative hybrid funds, short duration funds, corporate bond funds and banking & PSU debt funds. A phased transition using systematic transfer plans (STPs) into these can minimise timing risks.
Conservative hybrid funds
Conservative hybrid funds invest predominantly in debt securities, while keeping a modest equity exposure. Typically, 75-90 per cent of the portfolio is in debt, and 10-25 per cent in equities. The high debt allocation ensures stability and regular income, while the limited equity portion provides potential for growth. This balanced structure allows investors to participate in market upswings, but with controlled risk. On the equity side, these funds usually follow a multi-cap approach spanning large-, mid-, and small-cap stocks. On the debt front, most adopt a blend of moderate duration and accrual strategies. According to bl.portfolio’s star track ratings, five- and four-star rated funds in this category include SBI Conservative Hybrid, Kotak Debt Hybrid, ICICI Pru Regular Savings and HDFC Hybrid Debt Fund. Based on seven years of data, their five-year rolling returns averaged 11 per cent, 11.5 per cent, 10 per cent and 10.9 per cent respectively.
Short duration funds
Short duration funds are mandated to maintain a Macaulay duration of one-three years. They strike a balance between liquidity and returns and reduce the risk to your portfolio from rising rates. In a changing rate environment, these funds realign portfolios faster to new rates. As per bl.portfolio star track ratings, top-rated schemes include UTI Short Duration, ICICI Pru Short Term, HDFC Short Term Debt, Aditya Birla SL Short Term, Nippon India Short Duration and Axis Short Duration. Over the past seven years, their average five-year rolling returns ranged between 6.5 per cent and 7 per cent. Notably, all these funds also allocate 4-10 per cent to ‘AA’-rated papers, which could provide additional returns in a stable rate phase.
Corporate bond funds
Corporate bond funds invest at least 80 per cent in high-quality corporate debt, predominantly AAA and AA-rated instruments. They generally offer better yields than government securities, while maintaining a reasonable risk profile. With an average duration of 3-5 years, these funds carry moderate interest rate sensitivity, making them suitable for investors seeking predictable returns without excessive volatility. Based on bl.portfolio star track ratings, notable funds in this category include Nippon India Corporate Bond, Aditya Birla SL Corporate Bond, ICICI Pru Corporate Bond, HDFC Corporate Bond, and Kotak Corporate Bond. Over the last seven years, their average five-year rolling returns ranged from 6.5 to 7.2 per cent, with the overall category return at 6.4 per cent.
Banking & PSU debt funds
These funds invest primarily in debt instruments issued by banks and public sector undertakings, offering high credit quality and minimal default risk. Yields typically run 50-75 basis points above comparable government securities, making them a middle ground between safety and returns. This combination makes them appealing to conservative investors who prioritise stability. Over a seven-year period, the category delivered an annualised five-year rolling return of 6.4 per cent. According to bl.portfolio star track ratings, leading funds include ICICI Pru Banking & PSU Debt (6.8 per cent, an average five-year rolling returns), Kotak Banking & PSU Debt (6.8 per cent), Nippon India Banking & PSU (6.7 per cent), Aditya Birla SL Banking & PSU Debt (6.7 per cent), and HDFC Banking & PSU Debt (6.6 per cent).
Published on August 30, 2025