Mutual Funds

What are Hybrid Funds and types of Hybrid Mutual Fund

Created on 03 Nov 2020

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types of hybrid mutual fund

An investor who heard about mutual funds wishes to invest in a mutual fund to get higher returns with minimal risks. Investors used to save their money in the banks as Fixed Deposit (FD) to get the 6-7% risk-free return.

Finding a perfect fund to invest in a mutual fund can be hectic for a person who does not have any prior knowledge of the industry as a mutual fund offers a wide range of options to their investors. Mutual funds are categorized into various types as per the financial goals of the investors.

Equity fund (This scheme offers a higher return, but higher returns come up with higher risks) and Debt fund (This scheme offers better returns with minimal risks) are popular schemes of mutual funds, but selecting a good scheme can be hectic and time taking for the new investors as they do not have any prior knowledge. Every investor wishes to invest in a scheme where he can get a higher risk with minimal risk.

What if one could gain high returns with secure routes? It would be so beneficial for a new investor to have these two entities (Equity and Debt fund) in one place as it might get hectic to hunt these completely two separate routes of equity and debts within the field of finance. And this is where the hybrid fund (a self-explanatory scheme) comes in handy.

A hybrid fund scheme is a mutual fund’s objective-based scheme. Now let’s take a look through this scheme and explore what this offers to its investors.

Hybrid Funds

As the name suggests itself “Hybrid”, Hybrid means the combination of various funds.

Hybrid funds are the combination of equity funds and debt funds to attain the financial goals of the investors. Diversification in the fund schemes reduces the risks and offers the optimal return and interest rates to the investors.

But every investor has different financial goals and to keep this in mind hybrid funds are categorized into various subcategories to meet the financial goals of every type of investor.

Let’s walk you through these subcategories of the hybrid funds one by one.

Conservative Hybrid Fund

This fund has a combined portfolio of debt fund and equity fund, and the combination of these funds offers higher returns. The fund manager invests 75-90% of the total assets in high-quality debts and 10-25% of equity funds in the large-cap company’s stocks, which makes this fund lower risker and offers higher returns to their investors.

Balanced Hybrid Fund

As the name suggests itself “Balance”, the fund manager invests 40-60% in equity instruments, and the rest is in debt instruments to diversify the best portfolio for its investors. This fund keeps the balance between the equity and debt funds to ensure higher returns to their investor with minimal risks.

Aggressive Hybrid Fund

In this fund, the fund manager invests 65-80% of the total assets in equity and its instruments, and the rest is in debt securities and money market instruments.

This fund also takes advantage of the arbitrage opportunities ( Arbitrage opportunities; In this process, the fund manager buys securities at a lower cost and sells these securities into another market with a higher price to make a profit from their difference).

The fund manager analyzes the market fluctuations before selecting the stocks and looks at the various interest rates before investing in the debt securities to gain the optimal returns and interest rates.

Dynamic Asset Allocation Fund

This fund is a type of Balanced fund. In this fund, the fund manager invests in various sectors like Stocks, Equity funds, real estate, bonds, etc. to gain higher returns on their investments.

The fund manager keeps the balance between these investments if a market goes down of one investment then the fund manager shifts their investments to another market to keep the balance and to offer higher returns to their investors with minimal risks.

Multi-Asset Allocation Fund

As the name suggests ”Multi-Assets”, generally, this fund is the combination of equity funds, debt funds, and one more asset like gold, gold-instruments, real-estate, etc. Investors can invest up to 80% of these assets. As the investment is spread in various markets, that offers higher returns with minimal risks to their investors.

Arbitrage Fund

In this fund, the fund manager invests in equity when they are offered at a lower price. The fund manager buys securities at spot prices and sells them at a future price to gain the returns from their difference. Suppose the fund manager does not find any opportunity. In that case, he invests in the money markets and debt securities for the short-period to gain the returns for their investors with minimal risks.

Equity Savings Fund

This fund scheme invests in equity funds, debt funds, and arbitrage funds to gain the optimal risks. As the equity funds come up with higher risk, but debt and arbitrage funds keep the market risks lower, so the whole portfolio is balanced. We can say this fund scheme is also balanced. 

Diversification of this fund makes the portfolio less risky with optimal returns and interest rates.

Final Thoughts

To conclude this, hybrid funds offer various mutual fund schemes some of them are debt-oriented, equity-oriented, and balanced funds. Hybrid funds save a lot of time for investors not to go through in equity and debt funds separately which is hectic, time-consuming, and hard to make a choice in between for a beginner.

Hybrid funds maintain the balance between returns and risk as the fund manager invests to keep the ratio of equity and debt fund according to the financial goals of the investors.

Choosing the right fund for investors might be easier if an investor knows his financial goals which he wishes to fulfill in a period. These fund schemes offer various maturity periods to its investors to meet the financial goals of the investors.

Having prior knowledge of these funds, financial goals, and risk tolerance might help the investors to choose the right fund to gain the optimal returns and interest rates with minimal risks.

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Divyanshu Kumar

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Divyanshu did his post-graduation in Financial Economics, and that's when he realized that writing about finance interests him the most. He has been writing finance content for two years and considers himself a coherent and confident writer. As a Finance content writer, he reads a lot about the subject and makes sure he is up to date with the latest updates in the market. Besides that, he is passionate about fitness and works hard to maintain a healthy lifestyle.

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