Hybrid funds are a type of mutual fund that offers investors the opportunity to invest in both equity (shares) and debt (bonds) assets. The main objective of hybrid funds is to create a balance between risk and return, so that investors can get more stability and relatively better returns.
Types of Hybrid Funds
Equity-Oriented Hybrid Funds: These funds invest a majority of their funds (65% or more) in equities, which gives them the potential for higher returns. The rest is invested in debt and other instruments.
Debt-oriented Hybrid Funds: A majority of it is invested in debt instruments such as bonds, debentures, etc., which makes it safe. A small portion (35% or less) is invested in equities to increase returns.
Balanced Advantage Fund: This fund keeps changing the ratio of investment in equity and debt according to the market conditions. This fund in a way actively tries to take advantage of the fluctuations in the market.
Asset Allocation Funds: It invests in a variety of assets such as equity, debt, and gold. This fund is a good example of diversification.
Advantages of Hybrid Funds:
Balanced Risk: Hybrid funds have a mix of equity and debt, giving the investor stability along with higher returns. If the equity market falls, debt investment helps to balance that loss.
Diversification: Hybrid funds invest in different types of assets in a single fund, thereby diversifying the investment portfolio and reducing risk.
Stable Returns: Hybrid funds are able to deliver relatively stable returns due to the debt instruments, while equity investments still have the potential for higher returns.
Suitable for new investors: For investors who are afraid to invest directly in equities or do not want to take too much risk, hybrid funds are a good option. It offers the safety of debt along with the benefits of equity.
Good for long term investment: Hybrid funds can deliver better returns in the long term, as equity is known to provide good returns in the long term, while debt ensures stability.
Who should invest in these funds:
Investors who fear stock market volatility but still want to invest in equities.
Investors who are investing for the long term and want a balanced risk/return ratio.
New investors who are investing in mutual funds for the first time and have low risk appetite.