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 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.

Types of Hybrid Funds

Having understood what is hybrid fund, let us now look at the several types of hybrid funds, each of which is 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 are the way to go. They allocate a larger portion of their portfolio, around 75-90%, to debt securities, and the remainder to equities.

Balanced hybrid funds: Investment in equity & equity related instruments- between 40% and 60% of total assets; Debt instruments - between 40% and 60% of total assets. No Arbitrage would be permitted in this scheme. 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 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. This document should not be treated as endorsement of the views/opinions or as investment advice. This document should not be construed as a research report or a recommendation to buy or sell any security. This document is for information purpose only and should not be construed as a promise on minimum returns or safeguard of capital. This document alone is not sufficient and should not be used for the development or implementation of an investment strategy. The recipient should note and understand that the information provided above may not contain all the material aspects relevant for making an investment decision. Investors are advised to consult their own investment advisor before making any investment decision in light of their risk appetite, investment goals and horizon. This information is subject to change without any prior notice.