Hybrid Mutual Funds

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In accordance with the scheme's investment objective, hybrid funds are mutual fund schemes that invest in more than one asset class, such as equities, debt, and other asset classes. With the goal of reducing risk, these funds invest in a variety of different asset types to diversify the portfolio.

Advantages of Hybrid Funds

Diversification of portfolio: The ability to invest in numerous asset classes with a single fund is a definite benefit of hybrid funds. This makes it easier to build a balanced portfolio using just one investment.

Risk Management: The built-in safety net of debt assets that stabilises a portfolio during market downturns is another advantage of hybrid funds. This flexibility turns into a helpful risk management technique since the fund manager can alter the asset allocation of the hybrid fund depending on the circumstance.

Tax Efficiency: as rebalancing individually between asset classes can attract long term and short term capital gain tax.

Types of Hybrid Funds

Arbitrage Fund

Arbitrage funds work by profiting from the difference in price between 2 markets usually the cash market and the futures market. These funds purchase stocks in the cash market and simultaneously sell it in the futures market. Arbitrage Funds have a minimum of 65% of gross exposure to equity and the rest in debt and money market instruments which is done on a tactical basis.

Conservative Hybrid Fund

Conservative hybrid funds are open ended hybrid schemes investing predominantly in debt instruments which invest between 75% and 90% of its assets in fixed income generating securities such as Commercial Papers(CPs), Certificate of Deposit (CD), T-bills, corporate bonds and other money market instruments. The rest is invested in equity and equity related instruments. These funds are less volatile than an aggressive hybrid fund and are suitable for risk averse investors.

Equity Savings Fund

Equity savings fund invests in equity, debt and arbitrage opportunities in the cash and derivative segment of the equity market. This fund aims to generate income by investing in arbitrage opportunities with considerable exposure towards equity and can help in long term wealth generation.

Multi Asset Allocation Fund

Multi Asset Allocation Fund invests a minimum of 10% of its portfolio in at least 3 asset classes and increase/decrease its allocation according to the current market condition. These funds typically invest in equity, debt and gold related instruments including ETF and such other asset classes as SEBI may prescribe from time to time.

Dynamic Asset Allocation Fund

As the name suggests, Dynamic asset allocation fund dynamically invests in both equity and debt depending on the current market conditions based on an internal investment model. This fund is suitable for investors looking for better risk adjusted returns over long term irrespective of market conditions.

Aggressive Hybrid Fund

Aggressive hybrid funds are open ended hybrid schemes investing predominantly in equity and equity related instruments which invest between 65% and 80% of its assets in equity and the rest in debt and money market instruments. These funds have the potential to generate relatively better returns due to higher exposure to equity and equity-related instruments than conservative hybrid funds but are more riskier than them.

Features of Hybrid Funds

As these funds invest in a range of instruments that extend equity and debt assets, investing in balanced funds gives investors the opportunity to diversify their portfolio.
Balanced mutual funds reduce a shareholder's exposure to risk by investing in a balanced mix of debt and equity securities.
Hybrid fund investments enable the fund manager to change the portfolio of the fund in response to market conditions.
Pure stock mutual funds are more risky than balanced mutual funds.
In the case of significant market swings, these mutual funds are built to automatically rebalance an investor's portfolio. Even selling equities in mutual funds to maintain the performance of the fund is permitted by rebalancing, and vice versa.

Things to consider before investing in hybrid funds :

Before making an investment decision, it is crucial to understand the many aspects involved, including investment risk, expected returns, investment horizon, and fees.

Returns: The returns will vary depending on the fund's equity exposure and the success of the stock market. In comparison to a balanced and conservatively oriented hybrid fund, the returns of an aggressively oriented hybrid fund will be more closely associated with the equity markets. When the market is rising, it underperforms pure stock funds, and when the market is falling, it outperforms them.
Risk: Hybrid fund investing carries some risk. The amount of equity held in the portfolio determines how risky a hybrid fund is in general. The riskier the fund, the bigger the equity component.
Time Horizon: For a medium-term time horizon, say 3 to 5 years, hybrid funds are appropriate. The likelihood of obtaining stable, greater returns increases with the length of the time horizon.
Cost: Like any other mutual fund, hybrid funds also charge a fee known as the expense ratio. The investor will benefit more from a lower expense ratio. Although a high expense ratio impacts fund returns, it is not necessary that a high expense ratio always give low returns.
Investment Strategy: It is important to remember that the fund managers choose the combination of assets, the proportions of each asset, and the investment strategy. Investors have no control over the selection or blending of the various components.

Frequently Asked Questions (click here)

Q. What is the difference between a hybrid fund and a balanced fund?

A : As their name implies, hybrid funds are types of investments that mix different asset classes. These could be assets of the debt/fixed deposit variety, equity, or commodities (gold). Hybrid funds primarily invest in debt and equity in varying amounts.

One sort of hybrid fund is the balanced fund. According to their name, balanced funds invest equally in stocks and FD-like securities. These funds offer you a portfolio that is really balanced and combines growth and stability.

Q. How do hybrid funds work?

A. According to the scheme's investment objective, hybrid funds may invest in many asset classes. They mix equity, debt, gold-related securities, cash, and other asset types in their investments. In order to produce the best risk-adjusted returns, the asset allocation is made in accordance with the investment aim and market conditions.

Q. Who can invest in Hybrid Mutual Funds?

A. By completing the application form and submitting it to any Mutual Fund branch or point of acceptance, any investor who is permitted to invest in accordance with the relevant Scheme Information Documents and who has successfully completed the KYC procedure may invest in hybrid mutual funds. Another choice is to invest with us, send us a WhatsApp message, or make an appointment by calling +919833708591.

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