Hybrid Funds - Basics, Types & Benefits

The objective of hybrid funds is to achieve wealth appreciation in the long-run and generate income in the short-run via a balanced portfolio.

Hybrid funds, earlier known as Balanced Funds, invest in two or more asset categories. Some schemes invest in two assets, viz., equity and debt, or debt and gold. There are also schemes that invest in equity, debt and gold.

Conservative Fund

It is an open-ended hybrid scheme which predominantly invests in debt instruments. Specifically, a traditional hybrid fund can invest between 75%-90% of its total assets in debt instruments. It can invest the remaining 25%-10% of its assets in equity and equity-related instruments. Since this fund, invests the majority of its assets in debt instruments, it has a relatively low risk among hybrid funds.

Arbitrage Fund

It is an open-ended scheme which invests in arbitrage opportunities with at least 65% of its total assets invested in equity and equity-related instruments. These funds make money by buying and selling securities on different exchanges.

Balanced Fund

It is an open-ended hybrid scheme which invests 40%-60% of its total assets in equity and equity-related instruments and the remaining 60%-40% in debt instruments. No arbitrage is permitted in this fund.

Aggressive Fund

It is an open-ended hybrid scheme which predominantly invests in equity and equity-related instruments. More specifically, it invests between 65%-80% of its total assets in equity instruments. It invests the remaining 35%-20% of its assets in debt instruments. This fund has the flexibility to include arbitrage exposure.

Multi-Asset Allocation Fund

An open-ended hybrid scheme which invests in at least three asset classes with a minimum allocation of at least 10% each in all three asset classes – typically equity, debt and gold, this type of fund will help in reducing investors’ risk by diversifying investments across asset classes.

Equity Savings Fund

It is an open-ended hybrid scheme which invests in equity, arbitrage and debt. This type of fund invests a minimum of 65% of its assets in equity and a minimum of 10% in debt instruments. This fund comes with a moderate amount of risk due to moderate exposure to equity.

Hybrid funds provide higher returns than pure debt funds while also providing a cushion against extreme market turbulence. They are ideal for those investing in securities for the first time.

Risk factor

Although they are less risky than pure equity funds , you need to exercise caution and re-balance your portfolio regularly.

Return

Hybrid funds don’t offer guaranteed returns. The performance of underlying securities affects the Net Asset Value (NAV) of these funds. So, it may fluctuate due to market movements.

Investment Horizon

Hybrid funds are ideal for a medium-term investment horizon of five years.

Financial Goals

You can meet intermediate financial goals like buying a car or funding higher education with hybrid funds. Retirees can invest in balanced funds and go for a dividend option to supplement their post-retirement income.Choose a mutual fund based on your life goal, risk appetite and duration for which you wish to remain invested

The information contained herein is generic in nature and is meant for educational purposes only. Nothing here is to be construed as an investment or financial or taxation advice nor to be considered as an invitation or solicitation or advertisement for any financial product. Readers are advised to exercise discretion and should seek independent professional advice prior to making any investment decision in relation to any financial product. Aditya Birla Capital Group is not liable for any decision arising out of the use of this information.