Hybrid mutual funds: Why should you opt for the blend of equity and debt?
Hybrid mutual funds is a broad category which entails seven types of mutual fund categories. The latest AMFI data shows there are a total of 149 hybrid mutual fund schemes. The most popular ones are dynamic asset allocation and arbitrage hybrid funds with 31 and 27 schemes, respectively
A number of mutual fund houses recently rolled out hybrid mutual funds. For instance, PPFAS (Parag Parikh Financial Advisory Services) rolled out a balanced advantage fund, Quantum and Mahindra Manulife have also launched their multi asset allocation fund schemes lately.
Hybrid mutual fund is a broad category that entails seven types of mutual fund categories. The latest AMFI (Association of Mutual Funds in India) data shows there are a total of 149 hybrid mutual fund schemes. Out of these, the most popular ones are dynamic asset allocation (31), arbitrage funds (27) and combined category of balanced & aggressive hybrid funds (31), shows the AMFI data as on Jan 31, 2024.
Ratio between equity and debt differs
As the name suggests, hybrid mutual funds have allocation to equity and debt. The ratio, however, varies from category to category.
For instance, in conservative hybrid funds, allocation to debt instruments fluctuates between 75 to 90 percent in debt instruments while the remaining to equity.
Balanced hybrid funds, at the same time, have 40 to 60 percent allocation to equity and remaining to debt. In case of aggressive funds, 65 to 80 percent allocation is made to equity while the remaining to debt instruments.
Dynamic asset allocation or balanced advantage funds are flexible in terms of allocation to equity (0 to 100 percent) and debt (0 to 100 percent).
Multi asset allocation funds are mandated to invest in at least 3 asset classes with a minimum allocation of at least 10 percent in each class.
Arbitrage schemes follow an arbitrage strategy with minimum 65 percent investment in equity and equity related instruments.
Equity savings mutual funds have exposure to equity and equity related instruments (minimum 65 percent), debt instruments (minimum 10 per cent) and derivatives (minimum for hedging).
Why should you invest?
One of the key reasons to invest in hybrid mutual funds is that these schemes give sizeable exposure to equity, and hence to the market upside — while protecting the downside by investing in debt instruments such as sovereign and corporate bonds.
It is vital to note that investors should opt for the category of hybrid mutual funds based on the risk appetite. For instance, those with a high risk appetite can opt for aggressive hybrid funds or equity savings while the ones with moderate or low appetite can opt for balanced and conservative hybrid funds, respectively.
“If your risk-taking ability is moderate, you are new to equity investments and if you have mid-term goals ranging from 5 to 8 years in this case you need such a type of fund which can offer equity return but also provide downside protection. Hybrid funds offer both these benefits,” says Preeti Zende, a Sebi-registered investment advisor and Founder of Apna Dhan Financial Services.
“You can also club these funds as part of pure equity funds for long-term goals as they help to reduce overall risk in the portfolio and enjoy better taxation as well,” she adds.
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Business NewsMutual FundsHybrid mutual funds: Why should you opt for the blend of equity and debt?
First Published:21 Feb 2024, 01:53 PM IST
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