There are many smart investment tools in the market and one of them is hybrid funds. “
What is a hybrid fund?” you ask? To put it simply, they are amongst the many subcategories of mutual funds which are also referred to as balanced funds. This category of funds is known for investing in a combination of equity and debt investments. Thanks to the aforementioned aspect, they got the name ‘hybrid funds’. As hybrid funds invest in both equity and debt, they are also referred to as multi-asset funds. Hybrid funds come with a wide range of features. They are:
1 You can enjoy the benefits of both debt and equities:
Amongst the best features of
hybrid mutual funds is that through this fund, an investor can invest in both equities and debt securities at the same time along with other asset classes like gold. So, through a hybrid mutual fund, an investor may get a chance to enjoy a higher income over a longer period of time. That can be attributed to the equity component of the hybrid fund. Simultaneously, the fund might resist market volatility because of the existence of the debt component. Because of this feature, hybrid funds are known to attract all kinds of investors. For example, if you were to be a conservative investor, you can invest in hybrid funds as they come with debt components. Conversely, if you are an aggressive investor, you can opt to put money in hybrid funds thanks to the existence of the equity component. Generally, people with knowledge of investing in the market will know that rebalancing the portfolio on a regular basis and making investments according to asset allocation principles might be an effective way of meeting one’s financial goals. So, while investing in a hybrid fund you must make sure to maintain a balance between different asset classes. If you rebalance your portfolio regularly, hybrid funds may help you to reach both your short and long-term financial goals.
2 It is possible to invest in multiple assets:
You should consider choosing hybrid mutual funds as a smart investment plan as they give investors a chance to invest in all kinds of assets. By opting for hybrid funds, you will be exposed to a wide range of investing tools like gold-related instruments, debt, equity and other asset classes. Investing in hybrid funds will also save you the hassle of investing in different asset classes separately. Doing so also will reduce the costs involved in investing in different asset class-based funds.
3 You might enjoy the benefits of investing in different assets:
Consider this scenario. You have made up your mind and chosen to invest your hard-earned money into hybrid funds. As a part of the investment plan, while investing, you opt to diversify your funds into different asset classes. When you do that, you would be enjoying income from the hybrid funds, from not just one asset class but from the diversified asset classes that you have invested in as well. That is one of the alluring factors of hybrid funds.
4 They are the fund for all kinds of investors:
Another alluring feature of hybrid funds is that they have different kinds of funds and some of them might catch the attention of different kinds of investors. So, when you are considering opting for a hybrid fund, please make sure to identify what kind of investor you are. For instance, in case you are a conservative investor, you can opt to invest in arbitrage funds or equity savings funds. On the other hand, if you are an investor with moderate risk tolerance, you can invest in a conservative hybrid fund. But if you are a more enterprising investor, someone with a high-risk tolerance, you can go ahead and invest in things like dynamic asset allocation, hybrid equity funds and multi assets funds or dynamic asset allocation funds.
5 Helps in rebalancing assets:
If you have opted for a hybrid fund, it is important to remember that rebalancing the portfolio is of utmost importance. Another thing you need to keep in mind while investing in hybrid funds is that different assets have different rates of returns. Moreover, as time passes, the funds being allocated might deviate from the targeted asset allocation. After carefully studying the market, the fund manager managing your portfolio may rebalance it so that the fund allocation aligns with the targeted asset allocation.
6 Enables easy diversification of funds:
hybrid fund is a type of smart investment plan that enables investors to put their money on both debt and equity, so, a lot of them opt to put their money in a hybrid fund for diversification.Diversifying your investment between both equity and debt ensures that even if the share prices in the market were to fall, the debt part of these investment plans ensures that the fund remains stable. Just imagine this hypothetical scenario, you opted to invest money in a hybrid mutual fund, and, currently, the market is going through a bear phase. Even though the market might be going through a terrible phase, you may not need to worry about your income. The debt component of the plan may ensure that these funds might be able to withstand the highs and lows of a stock market that is going through a rough phase.
Types of hybrid funds:
Another important tidbit to remember while investing in a hybrid fund is that there are multiple types of hybrid funds. So, while investing in hybrid funds, please make sure to identify the type that suits your investment objective. They are:
This type of hybrid fund is known for investing in things like equity and arbitrage opportunities in the cash and derivative segments of the equity and debt markets. If it is long term wealth acquisition that you seek, putting money in arbitrage opportunities that have considerable equity exposure, might be an ideal solution.
- Multi-asset allocation fund:
A multi-asset allocation fund is a type of fund that invests in more than one asset class. Depending on the market conditions, an investor might opt to increase or decrease its allocation.
In an arbitrage fund, an investor may get income only if there is a difference in price between two markets, namely, the cash market and the futures market. Here the investor is supposed to purchase stocks in the cash market and after doing so, they will sell them in the futures market. The arbitrage hybrid fund is a type of fund which is tactically exposed to things like debt, equity and money market instruments.
- Dynamic asset allocation fund:
In accordance with their name, dynamic asset allocation funds diversify their investments by investing in both debt and equity. While investing, you will do so after carefully studying the market conditions. This type of hybrid fund is suitable for you if you are seeking income over a longer period regardless of the market conditions.
Aggressive hybrid funds are a type of open-ended scheme that invests primarily in equity and even its related instruments. This is a type of hybrid fund that may have the potential to generate good income. That’s because of the high exposure to equity and its related instruments. But before opting to invest in this type of hybrid fund, it is important to be cognizant of the fact that you need to brace yourself for high investment risks while investing.
- Conservative hybrid funds:
Conservative hybrid funds are a category of hybrid fund schemes that invest in fixed income-generating securities like money market instruments, T-bills, commercial papers (CP), corporate bonds and a certificate of deposit (CD). And the assets remaining from investing in the aforementioned securities are put into things like equity and its related instruments.
Aggressive and conservative hybrid funds are some of the most opted types of hybrid funds. Here’s what you need to know about them:
Aggressive hybrid funds are the type that works on the principle of asset allocation. Each of the asset classes in the fund has different risk profiles. When an investor diversifies investments across equity and debt asset classes, they do so with an eye to possibly reducing the risk and at the same time, generating income for investors over sufficiently long investment horizons. So, if you are okay with taking a risk, you might give aggressive hybrid funds a chance. You should consider investing in aggressive hybrid funds if you are:
- Looking for capital appreciation:
If you are someone who is looking primarily for capital appreciation income and also the income from their investments, then you can go ahead and opt to invest in aggressive hybrid funds.
- If you don’t want to invest just in pure equity funds:
Since these funds are a subcategory of hybrid funds, they invest both in equity and debt investments. So, if you are seeking an option other than pure equity funds, aggressive hybrid funds might be a viable option for you.
- If you have short-term goals:
You can opt to invest in aggressive hybrid funds if you are looking to invest in a tool that has a tenure of at least 3 years. The longer the investment tenures in these funds, the higher is the potential for income from your investment
- If you have an appetite for risks:
As stated earlier, aggressive hybrid funds are a kind of fund in which you have to brace yourself for risks. So, if you are a type of investor who is okay with taking moderate to high risks, you can opt to invest in aggressive hybrid funds.
- Conservative hybrid funds:
As stated earlier, conservative hybrid funds are the type of hybrid funds scheme that invest in income-generating securities like money market instruments, T-bills, commercial papers (CP), corporate bonds and a certificate of deposit (CD). And the assets left after investing in the securities are put into things like equity and its related instruments.
- If you are looking for long-term income:
If it is income over a longer period of time that you seek, you can go ahead and invest in a conservative hybrid fund. So, make sure to decide on the investment horizon before opting for a hybrid fund. If your investment horizon is three years or more, you can invest your earnings in a hybrid fund.
- If you are looking for regular income:
Conservative hybrid funds may be a suitable option for those looking to accumulate income over a regular period of time. Thanks to the existence of the debt portion of these funds, the investor might be able to enjoy a moderate, but steady flow of income. Though the small equity allocation adds a bit of volatility, it does help the income to keep up with the rate of inflation over the long term.
- If you are a conservative investor:
If you are the type of investor who does not want to see your portfolio affected by the volatility of the stock market, a conservative hybrid fund might be an ideal solution for you. It is suitable if you are content with moderate returns, you can opt to put your money in a conservative hybrid fund.
The aforementioned information is everything there is to the topic which is popularly dubbed as ’debt fund vs equity fund’ in the online circles. If you want more information, you can either contact a financial expert or read up about them online.
Mutual Fund Investments are subject to market risks, read all scheme related documents carefully.
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