Hybrid Funds- to enjoy the best of both equity and debt funds

If you are among those who wish to include an excellent portfolio diversification to your already existing portfolio

If you are a risk-taking investor or the risk-averse one, hybrid mutual funds can be a good option for you to increase your wealth


Do you dream of building wealth and become independent financially? Then you will not find any better option than investing in mutual funds. It is a wonderful investment choice which has gained immense popularity in recent years. A great investment tool, mutual funds, is a collection of bonds or stock managed by professional fund managers. One of the most attractive features of mutual funds is that it is suitable for all types of investors. Some investors prefer taking risks in order to get higher returns, and equity funds are suitable for them. At the same time, some people never dare to take risks, and they care about the safety of their capital. Such investors prefer investing in debt funds. However, what would do if you not prefer to invest in equities for fear of losses but not looking for the stable returns from the debt funds. Here comes the importance of hybrid funds. Let’s know more about hybrid funds and the advantages of investing in them.

Let’s find out about hybrid funds

If you are a risk-taking investor or the risk-averse one, hybrid mutual funds can be a good option for you to increase your wealth. It is suitable for both the novice and seasoned mutual fund investors. As an investor, you must know about hybrid funds. Like many other mutual fund investment plans, it is also a scheme that improves the value of your investment either by establishing good returns or by way of capital appreciation. Many investors prefer hybrid mutual funds as it is a solution to the various drawbacks of both debt and equity funds. Exposure is not limited to either equity or debt fund in the case of hybrid funds, but it is a combination of both and other asset classes. If you are the first-time investor, a hybrid fund can be a good suggestion for you as the risk is taken by you is relatively less compared to the equity mutual fund investment. In short, investors invest in both equities and debt instruments in the case of hybrid funds to get optimum diversification and assured returns. You can choose the right hybrid fund based on your investment goal and risk preferences.

Different types of Hybrid funds

The main aim of hybrid funds is to create income in the short-term and acquire wealth appreciation in the long-term through a balanced portfolio. Based on your investment objective, your fund manager allocates the money that you have invested in debt and equity instruments in different proportions. He may buy or sell securities considering the market movements to take advantage of that. Take a look at the different types of hybrid funds based on their asset allocation.

Balanced hybrid funds: In these funds, 40% to 60% of the total assets invested in equity or related instruments and the remaining 40% to 60% of the total assets in debt instruments. One of the great features of balanced hybrid funds is that arbitrage is not allowed in this investment option.

Conservative hybrid funds In this fund scheme, 75% to 90% of total assets invested in debt instruments while the remaining 10% to 25% of the total assets in equity or equity-related schemes.

Equity Savings funds: These funds invest at least 65% of total assets in equity or related instruments and a minimum of 10% of the total assets in debt instruments. You can invest in both equity and debt in this hybrid fund, but arbitrage is allowed.

Aggressive hybrid funds: Nearly 65% to 80% of the total assets invested in equity or equity-related instruments in hybrid funds while the remaining 20% to 35% in debt instruments. Fund houses keep either the aggressive hybrid funds or balanced hybrid funds, but not allowed to offer both the fund types.

Balanced advantage funds or Dynamic asset allocation funds:  You can invest in both the debt and equity or equity-related instruments in this type of hybrid funds. The best feature of this type of hybrid funds is that it manages dynamically.

Arbitrage fund: As the name suggests, the main aim of investing in arbitrage funds is to seek opportunities for arbitrage. Minimum 65% of the total assets of this fund invest in equity or equity-related instruments.

Multi-asset allocation funds: It is another type of hybrid funds which invest in not less than three asset classes. A great feature of this fund is that each asset class has at least 10% allocation of the total assets. In multi-asset allocation hybrid funds, foreign securities cannot treat as a distinct asset class.

Advantages of investing in Hybrid funds

Many investors prefer hybrid mutual funds as it can diversify the investment, and help them to acquire the best of equity fund and debt fund.  Hybrid funds assure returns and stability by investing in debt instruments while capital appreciation by investing in equity instruments. Since these schemes use portfolio diversification, market analysis, and asset allocation, it can ensure maximum returns to the investors at minimal risk. Let’s check the advantages of investing in hybrid funds.

  • Balance risk and return: The equity component of hybrid funds helps investors to earn better returns, while its debt portion helps them to earn steady returns at minimal risk. You can choose the combination of debt and equity funds based on your needs in hybrid funds.
  • Diversification: Since hybrid funds are a mix of equity and debt funds, it provides investors the advantage of diversification. The debt part of these funds ensures stability when shares prices go down. Fund managers sell stocks in hybrid funds when share prices rise so that they can maintain the much needed equity-debt ratio.
  • Ideal for new investors: It is an ideal choice for first-time investors, particularly in equity. The main advantage of choosing hybrid funds is that it helps new investors to get an idea of equity, but not many risks involved when share prices rise and fall.
  • Higher returns: Hybrid funds can offer higher returns than large-cap funds, especially in a volatile market.
  • Minimum volatility: Hybrid funds offer lower volatility because of the debt part in it which brings some sort of stability. Fund managers can handle redemption’s better in this scheme ensuring stable returns to its investors.
  • Lower expenses: Expense ratio is relatively low for hybrid funds as it requires minimum active portfolio management. Hybrid funds have a fixed ratio of bonds and stocks, and fund managers prefer to concentrate on large-cap stocks.

Investing in mutual funds is certainly an important step to be independent financially. It can be a great avenue for those who look for investment options to create wealth for the future and meet their financial goals.  Good knowledge and understanding about mutual funds help you to choose the right one that meets your financial objectives. If you are among those who wish to include an excellent portfolio diversification to your already existing portfolio, then consider investing in hybrid mutual funds. It is also a safe option for new investors because they can allocate the funds in the right ratio and efficiently between industries and asset class based on the fund type and investment mandate. You just love investing in hybrid mutual funds as it has the advantage of cost efficiency and simplicity that many other investment choices lack.

That’s why Comparte Investment team asks do you have “Nivesh Ki Aadat”.

With this one can say “Mutual Fund Sahi hai”, so let me do Nivesh