The Indian stock market has been subject to considerable turbulence in the recent years. From the impact of demonetisation to the fall in global markets to the most recent post budget fall, the stock market has witnessed a number of dips in the recent years. This has made some investors averse to making investments in direct equity or pure equity funds. Yet the number of stock market success stories, especially in the long run often outshines the possible risk involved.
So, is there any other investment option which allows the investor to dapple in the stock market with a lower risk and some certainty on returns? Yes, in this case, hybrid schemes may be a suitable investment option.
So, what exactly does a Hybrid scheme mean?
A hybrid scheme invests its investment corpus in a mix of equity instruments and debt instruments. These schemes work on an underlying principle of balancing risk and benefit.
We find such balancing acts in many aspects of our daily lives. Let’s look at an example through a sport that resonates with almost all of us – cricket.
Many a time’s teams follow an aggressive strategy where the batsmen keep an attacking approach against the bowlers – this may go either of 2 ways. Either the risk pays off and the batsmen put up a huge score or the ‘hit out’ approach causes them to quickly lose wickets and they end up with a low score.
On the other hand, an over conservative strategy of playing defensively may retain wickets but may not lead to making a good enough score to lead to victory.
So, what’s the right approach to follow then? Well, the answer is there is no right or wrong approach. You have probably heard commentators often suggesting a more balanced approach where batsmen should play safe and keep rotating the strike and hit the big shots only on the loose deliveries. This way wickets can also be retained as well as a decent defendable score can be put up.
This is a classic example of balancing risk and benefit. Not being over safe by foregoing boundary hitting opportunities at the same time not being over aggressive and hitting out at every delivery.
This is exactly what hybrid schemes do – they balance risk and benefit. The intention is to earn potential long-term growth within moderate risk levels by striking a balance between potential growth of equity and the security of debt.
These funds can earn higher returns than pure debt funds at the same time have lower risk than a pure equity fund.
Let’s look at one such Hybrid scheme from Aditya Birla Sun life Mutual Fund more closely
The Aditya Birla Sun life Equity Hybrid’95 Fund
It is an open ended hybrid scheme investing predominantly in equity and equity related instruments. Some of its key features include:
It is an open ended fund so the investor has the flexibility of investing / redeeming his investment at any time.
Its asset allocation is in the range of 65% to 80% towards equity and balance towards debt instruments. It is thus an equity heavy hybrid fund and falls in the category of aggressive hybrid funds.
*As mentioned in Scheme Information Document (SID). For further information, please refer to the Scheme Information Document (SID) of this scheme.
The inherent flexibility in its asset allocation ratios allows fund managers to adjust to market conditions and modify equity allocation accordingly
Objective of the fund is to achieve dual purpose of long-term growth as well as earning regular returns through dividends
Is this fund for you?
If you are looking to capitalise on the long-term potential of the equity market but do not have the high-risk appetite required to be a pure equity investor, then a hybrid fund can be one of the investment options for you.
Mutual Fund investments are subject to market risks, read all scheme related documents carefully.