What are hybrid funds?

Hybrid funds are investment vehicles that combine the features of both equity and debt funds. These funds offer a diversified portfolio to investors by investing in a mix of stocks and fixed-income securities like bonds and treasury bills. The primary objective of hybrid mutual funds is to provide a relatively reasonable return potential while managing risk.

Investing in hybrid mutual funds can be an attractive option for investors seeking a balanced approach to wealth generation. These funds aim to strike a harmonious balance between the growth potential of equities and the stability of fixed-income instruments. By diversifying across asset classes, hybrid funds can potentially reduce the overall risk in your investment portfolio.

What are the types of hybrid mutual funds?

There are several types of hybrid funds, each tailored to meet different investment objectives and risk profiles. Here's a breakdown of the common types of hybrid funds:

Aggressive hybrid funds: These funds have a higher allocation to equities, making them suitable for investors with a higher risk tolerance. They typically invest around 65-80% in equities, with the rest in debt instruments.

Conservative hybrid funds: For those looking for a relatively stable investment avenue, conservative hybrid funds can be suitable. They allocate a larger portion of their portfolio, around 75-90%, to debt securities, and the remainder to equities.

Balanced hybrid funds These funds almost evenly divide their portfolios between debt and equity, allocating between 40% and 60% of their total assets to each. They provide moderate growth potential with relatively lower risk.

Dynamic asset allocation funds: These funds have the flexibility to adjust their equity and debt allocations based on market conditions. They aim to capitalise on market opportunities while managing risk.

Arbitrage funds: These funds primarily invest in arbitrage opportunities between the cash and derivative markets. They offer relatively lower risk and are often used for short-term investments.

Multi-asset allocation funds: These funds diversify their portfolio by investing in various asset classes, including equities, debt, and sometimes even commodities and real estate, providing a broader investment spectrum.

The simple answer to the question ‘What is a hybrid mutual fund’ is that these funds offer investors a versatile choice to achieve their financial goals with a blend of asset classes. However, it's essential to assess your risk tolerance and investment objectives before choosing a specific type of hybrid fund. Consulting a financial advisor or distributor can help you make informed investment decisions tailored to your unique financial situation.

Mutual Fund investments are subject to market risks, read all scheme related documents carefully.