All you need to know about Hybrid Fund

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If you are looking for a diversified asset allocation with a single mutual fund investment, then here is your ideal option. Hybrid Funds. As the name suggests, this mutual fund invests in both equity as well as in debt funds to diversify its portfolio allocation. Based on your investment objective and risk taking ability, this fund allocate its assets in equity and debt instruments. The objective of this fund is to generate income in the short run and create wealth in the short run through diversified asset allocation. This fund not only gives you a reasonable return but also protects you from the risks involved in the equity markets.

How does Hybrid Fund Works?

Hybrid Fund aims to diversify its portfolio. It invests in multiple asset classes like stocks, bonds through a single mutual fund. This fund invests in equity and debt instruments depending on your risk taking tolerance. If you are a risk-lover, then the fund would invest more than 60% to 65% of its asset in equity related securities. While, it will invest around 60% or more of its assets in debt instruments, if you have low risk tolerance.

This diversified fund will help you cope with the market fluctuations in the stock market while incurring a loss that is lower than the equity market. But you also need to keep in mind that, the return that you will get from the hybrid fund will be lower than the equity fund.

Who should invest in Hybrid Funds?

If you are a conservative investor, then hybrid fund can be your first investment choice. Also, the new investors who are quite sceptical about the risks of equity fund but wants to earn good amount of return, can easily opt for hybrid fund. Hybrid fund not only provides a higher return than the debt fund but also safeguards you from the market fluctuations. Apart from diversified portfolio, this fund helps in creating wealth and generate income within a single mutual fund, which is really fantastic!

Types of Hybrid Funds

Based on the pattern of asset allocation, hybrid funds are categorized as-  

  • Conservative Fund– When a hybrid fund invests 70% to 80% of its assets in debt instruments and the remaining assets in equity related instruments, it is called Conservative Fund. This particular hybrid fund generates higher return than a pure debt fund.
  • Aggressive Fund– When a hybrid fund primarily invests 60% to 75% in equity instruments and the remaining assets in debt instruments, it is called Aggressive Fund. If you invest in this hybrid fund, then you tend to enjoy the tax benefits involved with the equity funds.    
  • Balanced Fund– This particular fund invests 45% to 65% of its assets in equity related instruments and the remaining in the debt securities. Balanced Fund is the most popular among the hybrid fund as it generates a reasonable amount of return without taking much risks.    
  • Arbitrage Fund– This fund invests in arbitrage opportunities due to price differences in cash and futures market. Arbitrage fund involves lower risk than equity fund and generate similar or higher return than debt fund. When there is a lack of arbitrage opportunities, this fund invests in debt market to continue earning return. Usually, the arbitrage funds enjoy tax benefits similar to equity funds.    
  • Dynamic Allocation Fund- This fund can invest from 0% to 100% of its asset either in equity or debt related instruments. Depending on the market condition, this fund can increase its equity exposure or debt exposure.    

Benefits of investing in Hybrid Fund

Following are some of the benefits of investing in Hybrid Fund.

  • It offers optimal diversification by investing in stocks as well as in bonds. 
  • This funds aims to generate wealth and income with multi asset allocation within the same fund.
  • It is a perfect mix of providing growth as well as safety to its investors.
  • This fund provides a wide range of products to help you with your investment objective.   
  • It can easily manage the market fluctuations because of its asset allocation.
  • Budding investors who are quite scared about the downturns of the market can easily invest in hybrid funds.

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