When investing in mutual funds, it’s common to feel overwhelmed by the variety of options available. One category that stands out for its flexibility and diversified approach is hybrid funds.

In this blog, we will dive deep into the meaning of hybrid funds, their benefits, various types, and how you can start your mutual fund investment journey with hybrid schemes.

What is a Hybrid Fund?

A hybrid fund is a mutual fund that invests in multiple asset classes, such as debt instruments (bonds), equities (stocks), and sometimes even commodities like gold.

It aims to build a well-rounded portfolio by strategically diversifying investments across these asset types.

The equity portion of the hybrid fund aims for potential growth, while the debt portion focuses on providing stable returns.

Hybrid Funds Benefits

Diversification

Instead of investing all your money in a single asset class, hybrid funds spread your money across stocks, bonds, and sometimes other assets.

Balanced Growth and Stability

The equity component can generate high returns if the stock market performs well. If the market is down, the debt portion helps cushion the impact, providing a safety net.

Professional Management

Experienced fund managers actively manage hybrid funds and make strategic investment decisions based on market trends.

Suitable for Different Risk Profiles

Whether you are a conservative investor looking for low-risk options or an aggressive investor seeking high growth, a hybrid fund type is tailored to match your risk profile.

Simplified Investment Process

Investing in a hybrid fund provides instant diversification, which saves you the hassle of selecting multiple funds for different asset classes.

Hybrid Fund Types

Hybrid mutual funds are of various forms, each designed to cater to different investor needs and risk appetites. Let’s explore the main types of hybrid funds.

Conservative Hybrid Fund

These funds allocate 75% to 90% of their investments to debt instruments and 10% to 25% to stocks. They are suitable for investors with a low-risk appetite wanting steady income with minimal stock market exposure.

Balanced Hybrid Fund

Balanced hybrid funds aim to invest 40% to 60% in both equities and debt instruments.

Aggressive Hybrid Fund

Aggressive hybrid funds have a higher exposure to equities, investing 65% to 80% in stocks and 20% to 35% in debt instruments. These funds are designed for investors willing to take on higher risk for potentially high returns over the long term.

Dynamic Asset Allocation / Balanced Advantage Fund

Depending on the state of the market, these funds may fluctuate between 0% and 100% in debt or stocks. They are actively managed and aim to leverage market movements to optimise returns.

Multi-Asset Allocation Fund

With a minimum commitment of 10%, these funds invest in a minimum of three asset types, including debt, equity, and gold. This diversification aids in distributing risk among several investment kinds.

Equity Savings Fund

Equity savings funds have at least 65% allocated to equities and a minimum of 10% in debt instruments. They use a mix of arbitrage and direct equity exposure to generate returns while reducing risk.

Arbitrage Fund

Arbitrage funds take advantage of price differences between the cash and futures markets. These equity-oriented hybrid funds aim to generate low-risk returns through arbitrage opportunities.

How to Invest in Hybrid Funds?

Investing in hybrid funds is straightforward. Here’s a step-by-step guide:

1. Identify your financial goals and choose a hybrid fund that aligns with your objectives.
2. Decide whether you want a conservative, balanced, or aggressive hybrid fund based on your risk appetite.
3. You can begin a Systematic Investment Plan (SIP) or make a lump sum investment. SIP is a disciplined approach that allows you to invest small amounts regularly, reducing the impact of market volatility.
4. Use tools like a SIP calculator to estimate potential returns. Compare the past performance of different hybrid funds over at least 5-10 years.
5. Visit the fund house’s official website, complete your KYC, and make your investment online. Once you have done so, the fund house will allot units based on the Net Asset Value (NAV).

Who Should Invest in Hybrid Funds?

Hybrid funds are suitable for a wide range of investors:

• New Investors: If you’re new to mutual fund investment, hybrid funds offer instant diversification with lower risk.
• Conservative Investors: Conservative hybrid funds are a good fit for those who prefer stable returns with limited exposure to equities.
• Growth Seekers: For investors seeking greater growth potential with a certain amount of risk tolerance, aggressive hybrid funds are perfect.
• Balanced Investors: If you want a balance of growth and stability, balanced hybrid funds or dynamic asset allocation funds can be an ideal choice.

Final Thoughts

Hybrid mutual funds are a great way to start your investment journey, providing a mix of growth, stability, and diversification. Remember to review the fund’s past performance, use tools like the SIP calculator, and regularly monitor your investments to stay on track with your financial objectives.