Hybrid funds present a compelling middle ground for investors in India. If you wish to venture into the potential returns of the equity market but desire some stability, hybrid funds strategically manage your investments across multiple asset classes for balance.
Hybrid funds present a compelling middle ground for investors in India. If you wish to venture into the potential returns of the equity market but desire some stability, hybrid funds strategically manage your investments across multiple asset classes for balance. This article will offer insights to help you determine if hybrid funds have a place in your portfolio.
Types of Hybrid Funds
SEBI (the market regulator) has categorised hybrid funds to help investors easily pick a style aligning with their risk tolerance:
- Conservative hybrid funds: Ideal for cautious investors, these prioritise debt with 75-90% in this asset class and the remainder in equities.
- Balanced hybrid funds: Maintain a nearly equal allocation between debt and equities (40%-60%) for moderation.
- Aggressive hybrid funds: A greater equity allocation (65-80%) increases the potential for long-term returns with slightly higher risk.
- Dynamic asset allocation/balanced advantage funds: These are like chameleons in the world of hybrid funds. Fund managers have the freedom to adapt their equity-debt exposure (0-100%) in response to market conditions, maximising profits and minimising downside risk.
- Multi-asset allocation funds: True diversification is their hallmark. They spread investments across at least three asset classes – equity, debt, and often gold – ensuring your portfolio isn't reliant on any one asset class.
- Arbitrage funds: Seek to profit from minor market price differences, with at least 65% in equities.
- Equity savings funds: A mix of equities, arbitrage, and debt offers balance to minimise risk.
Understanding how hybrid mutual funds work
Fund managers actively adjust investments within these funds using different proportions of debt and equity to align with their strategies and market trends. The overarching goal of hybrid funds is a harmonious balance of capital growth and protection, generally fitting a moderate risk profile.
Benefits of investing in hybrid mutual funds
- Diversification: Hybrid funds spread your investments across assets and even within individual asset classes, reducing overall risk.
- Beginner-friendly: A comfortable way to gain measured exposure to equities without diving headfirst into stock markets.
- Risk management: Hybrid funds aim to cushion downside risk and enhance returns as asset allocations are shifted in response to markets.
- Professional management: Experienced fund managers guide investments, saving you the need to time the market actively.
Taxation aspects
Be aware that taxation of hybrid funds varies:
- It's about equity vs. debt: Equity-oriented hybrids (investing at least 65% in equities) follow the same tax rules as equity funds. Debt-oriented hybrids adhere to tax norms applicable to debt funds.
- Invest with ease: Most investment platforms, mutual fund websites, and digital brokers offer seamless online investments of hybrid funds. Comparing different options is a breeze.
Should you consider hybrid funds?
Hybrid funds cater to a wide range of investment goals and risk profiles. If you crave some equity exposure for long-term growth but remain sensitive to market volatility, then the right hybrid fund could be a solid pillar in your portfolio.
It's vital to consult your financial advisor for tailored recommendations that suit your unique situation and financial aspirations.
Disclaimer: Above mentioned article is a Consumer connect initiative, This article is a paid publication and does not have journalistic/editorial involvement of IDPL, and IDPL claims no responsibility whatsoever.
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