Mutual fund investors can be broadly classified into three categories. One, those who are ready to take some risk and they invest in equity funds. Second, those who play it safe by investing in debt funds that assures some returns while keeping money safe, and third, those who want the best of both, by going for hybrid funds. This article covers the following:
Hybrid funds invest in both debt and equity instruments to achieve diversification and avoid the concentration risk. A perfect blend of the two offers higher returns than a regular debt fund while not being as risky as equity funds. The choice of a hybrid fund depends on your risk preferences and investment objective.
Hybrid funds aim to achieve wealth appreciation in the long-run and generate income in the short-run via a balanced portfolio. The fund manager allocates your money in varying proportions in equity and debt based on the investment objective of the fund. The fund manager may buy/sell securities to take advantage of market movements.
Hybrid funds are considered a safer bet than equity funds. These provide higher returns than genuine debt funds and are popular among conservative investors. Budding investors who are willing to get exposure to equity markets may invest in hybrid funds. The presence of equity components in the portfolio offers the potential to earn higher returns. At the same time, the debt component of the fund provides a cushion against extreme market fluctuations.
In this way, you receive stable returns instead of a total burnout that may happen in case of pure equity funds. For the less conservative category of investors, the dynamic asset allocation feature of some hybrid funds becomes a great way to enjoy the best out of market fluctuations.
Hybrid funds are further classified based on their asset allocation. Some hybrid funds have a higher equity allocation, while others allocate more towards debt. Let’s have a look in detail:
You can invest in hybrid funds in a paperless and hassle-free manner at ClearTax. Using the following steps, you can start your investment journey:
While selecting a fund, you need to analyse the fund from various perspectives. Various quantitative and qualitative parameters can tell you which is the best hybrid fund that suits you. Additionally, you need to keep your financial goals, risk appetite, and investment horizon in mind.
The following table shows the top five balanced funds in India based on the past three year returns.
|Mirae Asset Hybrid-Equity Fund
|ICICI Prudential Advisor Series – Conservative Fund
|Motilal Oswal Dynamic Fund
|SBI Equity Hybrid Fund
|ICICI Prudential Balanced Advantage Fund
*The order of funds doesn’t suggest any recommendations. Investors may choose the funds as per their goals. Returns are subject to change.
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