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What is hybrid fund?

Hybrid funds are an amalgamation of debt and equity investments that are designed to meet the investment objective of the scheme. These funds successfully achieve diversification while avoiding concentrated risk. A perfect blend of two asset classes, these funds aim at providing returns equivalent to equity funds while trying to mitigate the risk like debt funds.

How do hybrid funds work?

A hybrid fund endeavours to achieve wealth creation in the long run while creating a balanced portfolio that also offers regular income to investors. The fund manager creates a portfolio and allocates funds in debt and equity instruments according to the investment objective of the hybrid fund scheme.

Who should invest in hybrid mutual funds?

Hybrid mutual funds are considered to be a safer bet than equity funds. At the same time, these funds tend to provide higher returns than the regular debt funds. This makes hybrid funds quite popular among conservative investors. Hence, budding investors who are risk-averse to a degree and are willing to get exposure to equity mutual funds should consider investing in hybrid funds.

Types of hybrid mutual funds

Just like there are different types of mutual funds, there are different types of hybrid funds as well. Earlier, there were just boradly two kinds of hybrid funds: debt-oriented and equity-oriented hybrid funds. However, now according to the new Securities and Exchange Board of India (SEBI) norms on re-categorisation of mutual funds, there will be six categories of hybrid funds. These are:

  1. Conservative hybrid funds
    Such schemes are called conservative as they invest in debt securities predominantly. They invest around 75-90% of their total assets in debt securities.
  2. Balance advantage funds or dynamic asset allocation
    These hybrid schemes dynamically manage their investments in debt and equity instruments.
  3. Aggressive hybrid funds and balanced hybrid funds
    Balanced hybrid funds invest around 40-60% of their corpus in either debt or equity instruments.
    On the other hand, aggressive funds invest around 65-85% of their corpus in equity-related securities.
  4. Multi-asset allocation funds
    These hybrid funds have the liberty to invest in 3 asset classes, i.e., they can invest in an asset class apart from debt or equity as well. These funds are mandated to invest at least 10% of the total corpus in each asset classes.
  5. Arbitrage funds
    These hybrid fund schemes follow the arbitrage strategy and invest at least 65% of their assets in equity or equity-related instruments.
  6. Equity savings funds
    Such hybrid funds invest in debt, equity, and arbitrage. They are mandated to invest a minimum of 65% of their corpus in stocks and at least 10% in debt instruments.

Hybrid funds have gained popularity among investors in the past few months. Hybrid funds gives the best of both worlds – debt and equity. If you are new to the investing world, opting for hybrid funds can act as a gateway towards mutual fund investments. Happy investing!

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