A KiwiSaver conservative fund puts most of its money into bonds, cash and fixed interest, with a smaller share in growth assets. It aims to limit how far your balance falls in a bad year, and in exchange it has lower long-run return potential than balanced or growth funds. This page covers what a conservative investment fund holds, how it behaves, and how it differs from defensive and cash funds.
What Is a Conservative Fund?
A conservative KiwiSaver fund holds the majority of its assets in income assets — bonds, cash, and fixed interest — with a smaller allocation to growth assets like shares and property.
Typical conservative fund asset allocation:
| Asset class | Approximate allocation |
|---|---|
| Cash and cash equivalents | 15–25% |
| NZ and international bonds (fixed interest) | 45–60% |
| NZ shares | 5–10% |
| International shares | 10–20% |
| Property/infrastructure | 0–5% |
The exact allocation varies by provider. Some use the term “conservative” loosely — always check the fund’s actual asset allocation rather than relying on the name alone.
Returns and Volatility
A conservative fund’s returns come mostly from interest on its bonds and cash, so they follow interest rates more closely than share prices. When interest rates are high, conservative funds earn more; when rates fall, so does their income.
Approximate long-run returns have been around 3–5% a year before fees and tax. Past returns do not guarantee future performance.
Two things move a conservative fund’s balance:
- Interest rates. Bond prices fall when interest rates rise, so a conservative fund can lose value in a year of sharply rising rates even if share markets are steady.
- Its share allocation. The smaller allocation to shares means a conservative fund still falls in a share market crash, though by much less than a balanced or growth fund (KiwiSaver during a recession).
Because its returns are lower, a conservative fund’s fee takes a larger proportion of what it earns: a 0.8% fee on a fund returning 4% takes a fifth of the return. The KiwiSaver fee comparison by fund type lists providers’ current conservative fund fees.
Defensive, Cash and Conservative: What the Names Mean
Some providers call their lowest-risk diversified fund defensive rather than conservative, and some offer both: a defensive fund then usually has a larger share in cash and bonds, and fewer shares, than the same provider’s conservative fund. Names aren’t standardised, so the growth-asset percentage in the product disclosure statement (PDS) shows where a fund sits, whatever it is called.
A cash fund sits below both. It invests mainly in cash and short-term deposits, aims for very little volatility, and its returns follow short-term interest rates. Providers that don’t offer a cash or defensive fund have conservative as their lowest-risk option.
Conservative Funds and Default Funds
Before December 2021, KiwiSaver default funds were conservative funds; since then, the government-appointed default providers’ default funds have been balanced funds. The KiwiSaver default fund guide covers what changed and which providers are default providers.
Switching Into or Out of a Conservative Fund
A switch to or from a conservative fund goes through your own provider, mostly online, and is not taxed. Switching to a lower-risk fund after a fall sells growth assets at the lower price. Changing your KiwiSaver fund type covers the steps and timing.
Inflation Risk
The risk most people think about is market risk: that the balance falls. A conservative fund carries less of that, but more inflation risk: that the balance grows too slowly to keep its purchasing power. At a 4% return and 2.5% inflation, the real return is about 1.5% a year. How much that matters depends on how long the money stays invested; risk by time horizon sets out how the trade-off changes with the years until the money is needed.
Summary
| Feature | Conservative fund |
|---|---|
| Risk level | Low |
| Typical return (long-run, before fees and tax) | 3–5% p.a. |
| Asset mix | Mostly bonds and cash |
| Main risks | Rising interest rates, inflation |
| Similar names | Defensive (often lower risk still), conservative balanced (often higher) |