Are you looking to get the best equity and debt instruments in your portfolio? If yes, you’re at the right place. You might be wondering what is hybrid fund. Over the recent past, investors in India have fully embraced hybrid funds, catapulting them to become one of the most sought-after investment options within the nation. This article presents a holistic overview of best hybrid mutual funds in light of Indian investors and hybrid fund meaning.
What is Hybrid Fund?
WHY SMC
- 20 Lac+ unique clients
- 33+ Years of Serving
- Advance Technical Analysis
- Free Demat Account
As the name suggests, hybrid mutual funds are financial products that create an optimal middle path between debt and equity instruments. These funds typically invest in a well-defined mix of equities and debt securities, such as bonds. The most striking feature of hybrid funds is, perhaps, their innovative mix of stability and growth. Debt securities imbue an element of security into the portfolio, while equities promise the requisite growth.
Among the hybrid funds, there are funds with different risk profiles. The risk profile of any fund depends on its exposure to equities. Under current Securities and Exchange Board of India regulations, fund houses must disclose their investment allocations monthly.
You could then pick a fund that suits your profile and expectations by analysing this allocation or by checking the risk rating given to that fund to ensure an appropriate balance between risk and return. Funds with sizable equity allocations open up the prospects for higher returns but can also subject investment funds to high market volatility.
Having received better clarity on hybrid funds meaning, you are now more prepared than before to evaluate your preference for hybrid funds. Your preference for these funds should not only include the right combination of risk and returns but also other factors such as age. You should go in for funds with lower equity allocation if you prefer lower risks.
Types of Hybrid Funds
Having clarified what a hybrid fund is, let us cover the types of hybrid schemes available to investors.
WHY SMC
- 20 Lac+ unique clients
- 33+ Years of Serving
- Advance Technical Analysis
- Free Demat Account
1. Conservative Hybrid Funds
These funds have a higher allocation to debt securities—75% to 90%—with the rest in equities. They offer steady returns with low to medium volatility, which means they are less prone to the ups and downs of the equity market. Investors know them as moderate risk mutual funds. By opting for these funds, you can avail yourself of conservative hybrid fund taxation. Periodically, well-known mutual fund houses in India launch conservative hybrid funds.
2. Aggressive Hybrid Funds
Ever wondered what is aggressive hybrid fund? These funds allocate a relatively higher percentage to equities (65%- 80%). The remaining is invested in debt. Because of the higher allocation, these funds carry the potential for higher capital appreciation, but they can also subject your investment to sizable risks. You should choose aggressive hybrid funds to realise higher returns in a relatively shorter time.
3. Equity Savings Funds
These funds usually invest a minimum of 65% of the investment amount in equity. The rest is invested in debt or arbitrage (derivative positions). As per the recent guidelines of the Securities and Exchange Board of India (SEBI), these funds must allocate at least 10% of their amount in debt, and some in derivatives.
4. Balanced Hybrid Funds
Balanced hybrid funds can help you attain the right mix of debt and equity that you prefer in your mutual fund. Managed dynamically as per the existing conditions in the market, these funds offer better optimisation of risks and returns over market cycles.
5. Dynamic Asset Allocation Funds
Such funds’ main purpose is to allow their fund managers very high flexibility. The asset allocation will be dynamic, ranging from 100% equity to 100% debt or anything in between. Dynamic asset allocation funds are second to none when managing market volatility.
6. Multi-Asset Allocation Funds
These funds invest in equity, debt, and a host of other asset classes, such as gold and real estate. Such diversification helps them perform consistently. For new investors looking to enter the hybrid funds market in India, multi-asset allocation funds come across as the least risky option.
WHY SMC
- 20 Lac+ unique clients
- 33+ Years of Serving
- Advance Technical Analysis
- Free Demat Account
Benefits of Hybrid Funds
Having got clarity on what is hybrid fund, types of hybrid funds, and the best hybrid funds in India, let us look at the benefits of hybrid funds. Notable benefits of hybrid funds are.
1. Long-Term Wealth Creation
While the debt allocation in these funds helps cushion the interim volatility, the allocation to equities generates inflation-adjusted returns over the long term.
2. Reduced Volatility
Due to relatively higher allocation to fixed-income asset classes such as bonds, these funds experience lower volatility than pure equity funds. The allocation of funds in the right balance helps mitigate market volatility to a great extent.
Conclusion
Hybrid funds are among the most preferred investment funds in India. These funds offer investment flexibility like no other. With the right mix of debt and equity allocation, these funds can ensure that your wealth does not experience erosion amid global concerns and market volatility. As we have seen, you can choose from plenty of hybrid funds in India.
FAQs
How do hybrid funds work?
WHY SMC
- 20 Lac+ unique clients
- 33+ Years of Serving
- Advance Technical Analysis
- Free Demat Account
Investment funds that allocate their assets across many industries are known as hybrid mutual funds. These funds often invest in stocks and bonds, but their portfolios may also contain gold, foreign equities, and other assets.
Where do hybrid funds get their returns from?
Hybrid funds get their returns from capital appreciation and income distribution of the underlying assets in which they invest.
What is the difference between a hybrid fund and a balanced fund?
Hybrid funds are a broader term encompassing funds with different risk-return profiles that invest in debt and equity. Balanced funds in mutual funds maintain a set ratio of debt to equity to maintain a steady balance.
What are the benefits of hybrid funds?
Hybrid funds offer a perfect balance between equity and debt instruments. While the debt component ensures the stability of returns, the equity component facilitates inflation-beating returns.
Is hybrid fund good for long-term?
One of the finest investment options for investors with long-term or medium-term investment horizons (four to five years or more) is a hybrid fund investment; in an equity-debt hybrid fund, the debt component provides a consistent return, while the equity component aids in capital appreciation.
References:
https://www.sharekhan.com/knowledge-center/mutual-funds/hybrid-mutual-funds
https://www.5paisa.com/stock-market-guide/mutual-funds/what-is-hybrid-fund
https://www.hdfclife.com/insurance-knowledge-centre/investment-for-future-planning/what-are-hybrid-funds-meaning-types-and-benefits
https://www.kotaklife.com/insurance-guide/wealth-creation/what-is-hybrid-funds
