Everything You Need to Know About Hybrid Funds

A ‘hybrid’ of something in a literal sense would result from combining two different elements. But do you have any clue on what a hybrid mutual fund is?

A hybrid fund allows you to invest in equity and debt instruments through a single fund. Therefore, they are also called multi-asset funds. Furthermore, there are types of hybrid funds formed with different debt-equity combinations that address various types of investors.

Let’s look at everything you need to know about hybrid funds as we answer three simple questions.

What are the types of hybrid funds?

Here are a few popular types of hybrid funds:

  • Equity-oriented hybrid funds invest between 65%to 80% of their total assets in equities and equity-related instruments. The remaining percentage is invested in debt-based and money market instruments. They are also known as aggressive hybrid funds.
  • Debt-oriented hybrid funds, on the other hand, invest between 75% to 90% in debt-based instruments and between 10% to 25% in equity and equity-based assets. Debt-oriented hybrid funds are also called conservative hybrid funds.
  • Balanced funds follow a 40% and 60% combination between equity and debt.
  • A balanced advantage fund is a dynamic asset allocation fund where investments in equity and debt counterparts are dynamically managed.
  • Arbitrage funds play upon the price difference by simultaneously buying and selling assets.

What are the benefits of investing in hybrid funds?

Now that you know the different types of hybrid funds, let’s look at the benefits of investing in them:

  • By investing in hybrid funds, you can get the best of both equity and debt. You can get the wealth creation feature of equity and the stability aspect of debt together by investing in a single fund.
  • Since the fund is composed of equity and debt instruments, it adds diversification to your investments.
  • Hybrid funds can be a suitable option for investors who want to enter equity-based investing with a lower level of volatility. This is because the debt component of the fund lowers volatility and brings stability to your investment.
  • Furthermore, with just a SIP (Systematic Investment Plan), you can invest in equity and debt securities.

What are the factors you should consider when investing in hybrid funds?

Though there are multiple benefits of investing in hybrid funds, there are also a few things you should be careful about.

Here are some things to consider:

  • The degree of risk involved in hybrid fund investing is aligned to the asset allocation of the fund. Therefore, it can help to look at the composition of the fund. For example, you can look at the stocks it invests in. You can look at whether they are large-cap, mid-cap, or small-cap businesses.
  • You can also analyze your own goals according to their timelines and risk appetite and check if it aligns with your hybrid fund investments. To get a better idea of this, you can seek professional financial advice as well.

With the points mentioned above, you can see that hybrid funds can offer you the best of both equity and debt investments. They can help you reach financial goals that align with the risk and return aspect of the fund.

Mutual Fund investments are subject to market risks, read all scheme-related documents carefully.

Previous articleWhat should be your first investment with your first salary?
Next articleMutual Funds – Myths Busted
Yonita Alvares
Yonita is the pillar of Client servicing at Moneyfront. She has worked with Citibank for over 25 years in operations and client servicing. In her stint with Citi, she has managed large service setups and her rich experience of banking spans across managing clients, operations, audits and compliance matters. She epitomises ‘client excellence’ in the true spirit of the word. Her motto and single-minded focus is to make sure every client is a happy client.