30 October 2024
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Hybrid Schemes, a type of mutual funds, are an attractive investment option that melds the characteristics of both equity and debt investments within a single portfolio. These schemes are structured to provide a diversified approach, with the aim of striking a balance between capital appreciation and income generation. This makes them a compelling choice for investors seeking a middle ground between risk and returns. Several types of Hybrid Schemes are available to cater to diverse risk appetites and financial objectives:
Balanced Advantage Fund (BAF): BAFs are designed to dynamically manage asset allocation between equity and debt based on prevailing market conditions. This approach offers flexibility, allowing the fund to adapt its portfolio to capitalize on market opportunities. This is an ideal choice for investors who prefer to avoid manually handling asset allocation and rely on the fund manager’s expertise to make such decisions based on the market environment.
Multi-Asset Fund: Introduced as a sub-category of hybrid funds in 2017, Multi-Asset Funds have the flexibility to invest in three or more asset classes. As per the fund, such a fund will maintain a minimum of 10% allocation in equity, debt, and commodities. For the remaining 70%, the fund manager has the discretion, to allocate these funds as per their outlook on various asset classes. This is an excellent option for those seeking allocation beyond equity and debt.
Aggressive Hybrid Funds: These funds maintain a balanced mix of equities and debt instruments. They enable investors to partake in the growth of the stock market while mitigating risk through fixed-income securities. Typically, these funds allocate a significant portion, around 65-80%, to equity and the remainder to fixed income, making them an appealing choice for investors looking for an asset allocation with a bias towards equities.
Equity Savings: Equity Savings schemes allocate investments to equities, debt, and arbitrage opportunities. These funds manage exposure by investing approximately 20-50% in equities, 10-35% in debt, and the remaining balance in arbitrage strategies. They suit investors who are risk averse but wish to have some allocation to equities.
Conservative Hybrid Funds: Predominantly, these funds (up to 75-90% of the portfolio) invest in debt instruments to generate a regular income stream for investors. They also offer the potential for modest capital appreciation by investing the remaining portion (10% to 25%) in equity.
Arbitrage Funds: Such a fund maintains a fully hedged equity position. Despite this, they maintain a gross equity exposure of 65% and the remaining 35% of the portfolio is invested in fixed income. This strategy delivers returns akin to liquid funds over 4-6 months while enjoying the tax advantages associated with equity investing.
As can be seen from the various types of hybrid funds, there is a hybrid fund available to meet the requirements of every type of investor.
Wealth Creation with Hybrid Schemes
Hybrid Schemes offer a distinct advantage by harnessing the strengths of both various asset classes. The equity component delivers the potential for capital appreciation, while the debt portion ensures stability and a regular income stream. In most of the categories, by combining these asset classes, investors can build wealth over time while minimizing exposure to market volatility.
Distinguishing Hybrid Schemes from Traditional Investments
Hybrid Schemes differ from traditional investments primarily in their risk-reward profiles. Traditional investments typically revolve around a single asset class, such as stocks, bonds, or fixed deposits, making them more susceptible to the specific risks associated with that asset class. In contrast, hybrid schemes diversify investments across asset classes, reducing risk while offering the potential for higher returns. They provide a middle ground, enabling investors to balance growth and stability effectively.
In the realm of finance, achieving substantial financial goals only sometimes necessitates taking substantial risks. Hybrid Schemes present a practical approach to investing by merging the growth potential of equities with the stability of debt instruments. The versatility of these schemes mean there is a hybrid fund suitable for every kind of investor. With a track record of steadily creating wealth while effectively managing risk, they offer a valuable avenue for investors to think big and achieve their financial aspirations. As you embark on your investment journey, remember that diversification and the right balance between equity and debt can be your strongest allies in the quest for financial success.
About Infinity Money Matters
IMM Services is a boutique investment firm based out of Chennai catering to clients globally. The firm caters to HNI investors with focus on better risk adjusted return. The team consists of Certified Financial planners and ex Private bankers who have 15+ years’ experience of working with large MNC and Private wealth firms. Email: accounts@infinitymoneymart.com Website: www.infinitymoneymart.com
Disclaimer
The views are personal and are not part of the Outlook Money editorial Feature.
