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Hybrid Funds

 
Regular
Direct

Bajaj Finserv Balanced Advantage Fund

Hybrid Fund ellipse-img Regular Growth
 
NAV
---
as of
 
Risk Type
Very High
 
Min. SIP Amount
₹500
 
Min. Lumpsum Amount
₹500
 

Bajaj Finserv Arbitrage Fund

Hybrid Fund ellipse-img Regular Growth
 
NAV
---
as of
 
Risk Type
Low
 
Min. SIP Amount
₹500
 
Min. Lumpsum Amount
₹500
 
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How do hybrid funds work?

 
A hybrid fund is a diversified investment vehicle that combines both equity and debt instruments – and sometimes other asset classes -- in one portfolio. These funds aim to offer investors a balanced approach to investing by capitalising on the long-term growth potential of equities while mitigating risk and adding diversification through fixed-income securities and other asset classes.

 

Types of hybrid funds

There are several hybrid mutual fund types in India, each with different portfolio compositions and investment strategies. Most of them invest in both debt and equity to varying degrees. There are also arbitrage funds, which invest primarily in arbitrage opportunities in equity and equity-related markets.
Equity investments provide potential growth opportunities, while debt securities offer relative stability and the scope for income generation.

 

Here are the types of hybrid funds in India:

  • Aggressive hybrid funds: Invest a minimum of 65% of their assets in equities and at-least 20% in debt.
  • Balanced hybrid funds: Maintain a balance between equity and debt investments, with a minimum of 40% allocation to each asset class.
  • Conservative hybrid funds: Primarily invest in debt instruments (75% of their portfolio) with at-least 10% in equities.
  • Dynamic asset allocation funds: Portfolio is dynamically managed between debt and equity. Fund managers can choose an asset allocation pattern based on their investment objectives and strategy and can alter the allocation in response to market movements.
  • Multi-asset allocation funds: Invest in debt, equity and at least one other asset class, such as gold or real estate, with a minimum allocation of 10% in each.
  • Arbitrage funds: Invest primarily in arbitrage opportunities offered in equity and equity-related assets.
  • Equity savings funds: Invest in equity, debt, and arbitrage opportunities, with a minimum of 65% equity allocation and minimum 10% in debt.

Who should invest in hybrid funds?

Hybrid funds are suitable for investors seeking portfolio diversification and a balanced investment strategy that combines growth potential with relative stability.

Things to consider before investing in hybrid funds:

Before investing in hybrid funds, investors should consider several factors:

Investment objective: Assess whether the fund's investment objective and allocation pattern align with your financial goals and risk tolerance. For instance, investors seeking high growth potential may not find a balanced or conservative hybrid fund suitable.

Risk profile: Evaluate the fund's risk profile and assess whether it aligns with your risk tolerance and investment horizon. High-risk investors seeking higher potential for growth may prefer aggressive hybrid funds, whereas low-to-moderate risk investors may seek conservative hybrid funds or arbitrage funds.

Investment horizon: Hybrid funds that are dynamically managed or lean towards equity may be better suited to longer investment horizons, while conservative hybrid funds may suit investors looking at the short-to-medium term. Arbitrage funds may be better suited for short-term investments.

 

Benefits of hybrid funds

Diversification: Hybrid funds offer diversification by investing in a mix of asset classes, potentially mitigating overall portfolio risk.

Potential for growth: Equity investments within hybrid funds provide opportunities for capital appreciation over the long term.

Stability: Debt securities provide relative stability and potential for income generation.

Risk management: By combining different asset classes, hybrid funds seek to potentially manage risk and optimise returns.

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Frequently Asked Questions

 

Hybrid funds offer diversification by investing in both stocks and debt instruments, which can combine the potential for long-term capital appreciation with risk mitigation.

Debt mutual funds invest predominantly in bonds, money market instruments and other fixed income securities. Hybrid funds, on the other hand, typically invest in both debt and equity instruments. The debt-equity allocation ratio differs from one hybrid fund category to the other, but both asset classes are present to some degree in most hybrid portfolios.

Investors seeking to balance growth potential with mitigation of downside risk may find hybrid funds suitable. It is also suitable for investors looking to diversify across asset classes without the complexity of managing multiple investments.

Market risk – including volatility, economic downturns, sector-specific trends, and interest rates – affects both equity and debt portions of hybrid funds to varying degrees and can impact returns. Asset allocation risk can arise if the fund’s mix doesn't align with market conditions and a hybrid portfolio may offer lower returns than pure equity funds in certain market conditions. Additionally, underperformance or poor decision-making by fund managers can affect portfolio returns.

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