By The Buyt Desk
Debt funds are devoid of market fluctuations and can generate regular income. Equity funds are market-linked, and thus, volatile as per market variations in a short period. They generate good wealth in the long term. But if you want the best of both worlds? Hybrid mutual funds can do that for you. Choose hybrid funds and enjoy the benefits of capital appreciation and income generation.
The fund manager of a hybrid fund invests money in different asset classes – debt, equity, gold, and real estate; however, mostly, he chooses equity and debt funds. But hybrid funds have the advantage of both equity and debt funds. There are many available hybrid fund schemes with a varied proportion of equity and debt investment. The beauty of hybrid funds lies in rebalancing the asset allocation as per market variation. When the market is rising, the hybrid fund manager invests money in equity securities and achieves high gains. In times of low tide, he chooses to invest in debt instruments and evades the risk of market fluctuation.
You can choose to invest in hybrid mutual funds for the following reasons:
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Reduced Portfolio risk: Asset allocation and portfolio diversification ensure the safety of your investment. Asset allocation means investment in different asset classes, while diversification refers to investment in various schemes in the same asset class. The risk of capital erosion is neutralized by investing in debt and equity funds both and buying when the market is low and selling when the market is high.
The arbitrage fund, a type of hybrid fund, gains due to the price differential of equity securities in different markets. As the money moves in a brief period, the associated risk is relatively low. Therefore, you can invest in an arbitrage fund for a good return with equity securities but with low risk.
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Defined asset allocation strategy: If you wish to invest in various assets, but are unaware of the best investment schemes, then hybrid funds are ideal for you. Many schemes are available under different hybrid fund categories. Each scheme has a different percentage allocation in different asset classes.
Fund managers study the market carefully and choose securities for investment. Therefore, upon selecting a hybrid fund, you outsource asset allocation to a professional trader.
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Initiation in equity mutual funds: As a first-time investor, you can start with hybrid mutual funds. These funds have a low risk, but the possibility of high returns. Choose a hybrid fund with a higher per cent allocation in debt instruments at the beginning. Later, when you are ready to take a bigger risk, choose a hybrid fund with greater per cent allocation in equity securities.
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Suitability for various risk profiles: Whether a retired person wants risk-free income or an aggressive investor, hybrid funds are suitable for all risk profiles. A number of schemes with different percentage allocation in different asset classes are available in hybrid funds.
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Medium-term horizon: Your financial goal, like buying a car, may require staying invested for more than 3 years but lesser than 10 years. Debt funds have a short investment horizon, and equity funds give maximum returns in the long term. However, hybrid funds have a medium investment horizon and can provide decent returns in 5 years.
