A hybrid fund is a type of mutual fund that can benefit from investing in different asset classes. Keep reading to learn the many advantages of Hybrid Funds.
Among the different types of mutual funds available today, hybrid mutual funds are one of those that are increasingly becoming popular due to their flexible investment strategy. Hybrid funds can be a good choice for those investors who believe in taking calculated risks while hedging a certain amount of their investments.
What Is a Hybrid Fund?
Let’s understand what is hybrid mutual fund. A hybrid fund is a type of mutual fund that invests in different asset classes such as stocks, debts, and sometimes a money market component according to its stated objectives. Therefore, it can offer greater flexibility and stability than a pure fund that invests solely in one type of asset class. The objective of a hybrid fund is to provide investors with a diversified portfolio that balances risk and return.
Types of Hybrid Funds
As per SEBI guidelines, hybrid mutual funds can be of 7 types.
Why Should Invest in Hybrid Mutual funds?
Investors who want to benefit from the high earning potential of equities while having a certain degree of stability through debt instruments can consider investing in hybrid funds.
Additionally, new investors who may be hesitant to invest in the equity market can opt for hybrid funds.
Advantages of Investing in Hybrid Funds
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Diversification
A hybrid fund can offer access to different asset classes through a single fund. Therefore, investors can use hybrid mutual funds to create a diversified portfolio that includes stocks and bonds, which helps balance risk. They can also diversify your portfolio further by investing in equities across different market capitalisations.
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Professional Management
Hybrid funds are managed by investment professionals who try to identify good investment opportunities in the market and meet the fund’s stated objectives.
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Reduced Volatility
The combination of stocks and bonds in a hybrid fund can help smooth out the return fluctuations. As a result, they can have lower volatility than pure equity funds.
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Suitable For Different Risk Profiles
As discussed in the previous section, you can choose from seven types of hybrid funds. So, whether you’re a conservative investor, an aggressive investor, or a moderate one, you can choose a hybrid fund per your risk tolerance level.
You can also prefer a dynamic asset allocation fund if you like changing your asset allocation according to market conditions.
Key Things to Remember While Investing in Hybrid Fund
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Return Potential
The investment return-potential from hybrid funds can depend on the market conditions and level of equity exposure. So, investors can’t expect guaranteed returns while investing in these funds.
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Investment Horizon
You should consider a long investment horizon, like 3-5 years or more, to maximise your chances of optimising your returns.
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Fund Manager’s Decision
Investors can’t decide the investment strategy of the fund they invest in. Instead, the fund manager would take daily investment decisions based on its objectives.
If you want your portfolio to have investments across different asset classes, consider allocating a part of your investment corpus into a hybrid fund. Moreover, hybrid funds are one of those funds that can stay relevant to your portfolio across different market cycles depending on their asset allocation.
