Hybrid funds are investment vehicles that allocate money into equity and debt. This ensures a well diversified portfolio for you leading to better risk management and getting good returns. As an investor, you should invest in hybrid funds considering factors like type of hybrid fund, features of the hybrid fund, your investment requirements and asset allocation plan.
What are Hybrid Funds?
They are close ended funds that have allocation to different asset classes. They mostly invest in equity and debt. Some of them invest in other assets like Gold.
Hybrid Funds are good investment options that can help us achieve the objectives of good returns and risk diversification.
What are the different types of Hybrid Funds?
Hybrid funds can be classified into different types –
- Balanced Funds – They invest 65% of the amount in equity and the rest of the amount in debt oriented instruments.
- Regular Plans/MIPs – They are debt oriented mutual funds that allocate 25% to equity and the balance in debt oriented instruments.
- Equity Oriented Hybrid Funds – These are similar to balanced funds but invest more aggressively in equity. Around 80% of the money is allocated to equity which makes the risk quotient higher.
- Capital Protection Funds – These funds are close ended funds with a lock-in period. Majority of the investment is in debt and their aim is to protect the investment when the markets are volatile. They give fixed returns. But they are costly and there is no guarantee for capital protection.
Hybrid Funds and less risky compared to direct investment in equity markets and equity funds. They are more risky as compared to debt funds
Why should I invest in Hybrid Funds?
If you are the kind of investor, who is not willing to rebalance your portfolio regularly, you can try out hybrid funds. They invest in both equity and debt. So in case of a falling market, they can realign the portfolio towards other assets that provide safety. At the same time, if markets are doing well, they can rebalance the portfolio such that the equity exposure is high.
Some of them also invest in Gold and gold generally has an inverse relationship to equity in terms of returns. So it is a good hedge.
Here is a snapshot of performance of some Hybrid Funds –
Hybrid Funds are good for investors looking at one investment vehicle that creates a diversified portfolio and at the same time rebalances the portfolio as per market conditions. But if both equity and debt markets are underperforming, the returns get impacted negatively
So as an investor you should choose or ask your financial planner to choose the right type of fund and the right fund depending on features of the fund, performance of the fund, investment requirements and own asset allocation strategy. You should also do some amount of monitoring.