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Hybrid Funds

A hybrid fund invests in a mix of growth oriented equity, capital preserving debt and other assets related instruments, which can vary proportionally over time or remain fixed. They are also known as Asset Allocation funds. There are various types of Hybrids funds available to cater different needs of an investor. For example, an aggressive hybrid fund has higher exposure to equity instruments for achieving greater tax efficiency whereas a conservative hybrid fund will have higher exposure to debt instruments with an aim to provide relatively higher return than traditional saving instruments through a small exposure to equity.

Why?

There are investors who find Equity Funds high in risk and Debt Funds conservative in returns. Hybrid Funds can be considered as one-stop shopping approach, because they combine the benefit of equity, debt and other assets. The fund’s portfolio may be periodically rebalanced to bring the fund’s asset allocation as per fund’s objectives, keeping it relevant for investors.

Benefits of Hybrid Funds

  • Diversification
  • Good for beginners
  • Cushion of Debt component to withstand volatility

Who is best suited for Hybrid Funds?

Hybrid Funds are suited for investors who want the growth of Equity with safety of debt funds. Investors who are new or are vary of market fluctuations could consider investing in them as they seek to generate returns comparable to equity, at lower risk as compared to pure equity funds. Hybrid funds could be ideal for a medium-term investment horizon of 3- 5 yrs. Also, for investors who do not wish to manage the asset allocation of their portfolio themselves, Hybrid funds could be an option.

How Hybrid Fund Works?

Hybrid Funds allocate money in different proportions in equity, debt and other asset classes based on investment objective of the fund. They rebalance their portfolio as per their investing limits based on the prevailing market conditions. For example, in a rising market, if the equity allocation moves up from its mandated limit then fund manager will sell equity portfolio and buy debt, thus automatically booking profits.

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