Hybrid Mutual Funds: Meaning, types & benefits

Concentrating solely on returns while disregarding risk can make your investments vulnerable to uncertainty. The optimal approach to balancing risk and reward is through diversification, achieved by distributing your assets across various asset classes. If you're seeking to diversify your investments, hybrid funds can be an excellent choice. Continue reading to learn more.

What is a hybrid fund?

Mutual funds are broadly classified into three groups: equity, debt and hybrid. A hybrid fund is an investment that combines two or more asset classes in a single portfolio. These classes include stocks, bonds, cash equivalents and commodities like gold. Hybrid funds provide diversified exposure, which can help manage risk while potentially offering optimal risk adjusted returns than a single asset class investment.

Types of Hybrid Funds

• Conservative Hybrid Funds: 10-25% of the total funds are invested in equity and related instruments while the remaining portion is made up of debt instruments. These funds are ideal for investors with moderately low risk appetite.
• Balanced Hybrid Funds: The investment in equity and debt is done in a balanced ratio, not exceeding 60% and not falling below 40% in any asset class.
• Aggressive Hybrid Funds: Here, the investment in equity instruments range between 65% and 80% while the remaining portion is invested in debt instruments. They are suitable for moderately high-risk takers.
• Dynamic Asset Allocation: These funds change asset allocation dynamically as per market conditions. They have the flexibility to shift 100% of your investments to equity or debt. The allocation is decided based on the recommendation of their financial models.
• Multi-asset Allocation: At least 10% of the funds are required to be invested in at least three different asset classes i.e., equity, debt and gold.
• Arbitrage Funds: The funds follow an arbitrage strategy where a minimum of 65% of the funds are invested in equity and related instruments.
• Equity Savings Funds: They invest minimum 65% of their assets in equity and equity related instruments including derivatives and minimum 10% in debt instruments.

Benefits of investing in Hybrid Funds

1. Diversification: Hybrid funds spread the risk of volatility from equity asset class by investing in the safety of the debt asset class.

2. Readymade asset allocation: You don’t need to maintain separate investments into equity, debt or any other classes. Hybrid offers benefit of readymade asset allocation as per your risk tolerance and investment objective.

3. Adaptable: Hybrid funds such as Dynamic Asset Allocation funds adjust portfolio allocation according to market conditions and economic outlook, thereby relieving you of the need to time the market and monitoring the portfolio performance continuously.

4. No hassle of rebalancing: The allocation across various asset classes shifts over time due to market dynamics, necessitating regular rebalancing. You can rest assured, as hybrid funds are managed by professional fund managers who handle this task for you.

5. Cater to different goals: You can choose a hybrid fund category that matches your risk tolerance and investment goals.

Also Read: How to invest in Mutual Funds in 7 easy ways

Conclusion

Hybrid funds are mutual funds that invest in a combination of different asset classes. They help in capital appreciation via equity allocation and reduce volatility through the debt component of your portfolio. You can seamlessly invest in Hybrid Funds through Axis Bank’s Internet Banking and Mobile Banking platform.

Disclaimer: This article is for information purpose only. The views expressed in this article are personal and do not necessarily constitute the views of Axis Bank Ltd. and its employees. Axis Bank Ltd. and/or the author shall not be responsible for any direct / indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information. Please consult your financial advisor before making any financial decision.
Mutual Fund investments are subject to market risk, read all scheme related documents carefully. Axis Bank Ltd is acting as an AMFI registered MF Distributor (ARN code: ARN-0019). Purchase of Mutual Funds by Axis Bank’s customer is purely voluntary and not linked to availment of any other facility from the Bank. T&C apply.