Hybrid Fund Solution For Equity Benefits With Lower Risk

Many investors consider investments in equity mutual funds which invest in equities, as too high a risk for them, yet they ardently want higher returns than those of fixed income investments. But what if you had the opportunity to invest in funds which offered a higher return potential with slightly more risk? If you are keen for such an investment, then hybrid funds are for you. Hybrid funds provide you the potential for higher returns vis-à-vis fixed income by diversifying across asset classes. How is it possible? Here’s how.

Take advantage of multiple asset classes Hybrid funds, as the name suggests, give you the best of the multiple worlds. They invest in multiple asset classes like equity, fixed income, silver and gold etc. While the equity component provides the power to earn market-linked returns, other asset classes like fixed income, silver and gold etc. provide stability as they are uncorrelated to equity market movements. Typically, in a bull run, hybrid funds may not appreciate as much as a pure equity funds, but in a bear phase, they don’t fall as much due to presence of other uncorrelated asset classes. Within the hybrid category, there are multiple options to choose from, depending on the mix of asset classes. Hybrid funds are predominantly of seven types Conservative Hybrid Fund, Balanced Hybrid Fund, Aggressive Hybrid Fund, Dynamic Asset Allocation or Balanced Advantage Fund, Multi Asset Allocation Fund, Arbitrage Fund, Equity Savings Fund depending upon the mix of assets and the way they are managed.  Out of these seven, four of them are predominantly equity oriented fund such as Balanced Hybrid Fund, Aggressive Hybrid Fund, Arbitrage Fund and Equity Savings Fund depending on the equity allocation as they are mandated to take higher exposure in equity.

Solution for Equity Benefits with Lower Risk

Equity oriented hybrid funds aim to deliver relatively better returns than fixed income funds due to their predominant investment in equities. In a market downturn, their fall can also hurt you less, as the fixed component acts as a shock absorber.The other important advantage associated with predominantly equity oriented hybrid funds is that they are treated as equity investment for capital gains taxation.

Equity-oriented hybrid funds work well effectively for risk-averse investors across various stages, including new investors, those in their wealth preservation phase, or retirees aiming to combat inflation while having equity exposure in their portfolios. With a predominant allocation towards equities and the remaining amount in debt and money market instruments, these funds provide a balanced approach. For beginners, whose financial objectives like retirement or children’s education are distant, starting with such funds offers one good way of beginning with lesser turbulence in your mutual fund investment portfolio.

The Final Word

Hybrid funds offer a decent investment solution for individuals seeking a balanced approach to wealth creation with lower risk. By combining the strengths of multiple asset classes, these funds provide diversification, risk management, and growth potential, making them a suitable choice for a wide range of investors.

Disclaimer

Investments made in mutual fund schemes carry market risk and there is no assurance or guarantee that the objective of the schemes will be achieved.

These views alone are not sufficient and should not be used for the development or implementation of an investment strategy. Please consult a financial adviser before making an investment decision.

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Mutual Fund investments are subject to market risks, read all scheme related documents carefully.