When we refer to investments, the largest dilemma for novices would be equitable or debt. Equity delivers growth and has high risk. Debt provides safety, but with low returns. To address this conundrum, hybrid mutual funds were invented. They are also known as balanced funds because they combine equity and debt in one scheme. It’s a concern that the diet would enable you to grow but also be stable.
In this post we will know about what hybrid funds are? types of hybrid funds, advantages of investing in hybrid funds, risks involved and how a newbie can start investing in them.
What Are Hybrid Mutual Funds?
Hybrid mutual funds are products that comprise shares (equity) and bonds (debt). The proportion of equity and debt varies as per the category of hybrid fund. So, an aggressive hybrid fund puts more of your money in equity, and a conservative hybrid fund has more of it invested in debt.
The balanced approach decreases the exposure taken by investors and tends to offer a more level return than pure equity funds.
Types of Hybrid Mutual Funds
1. Aggressive Hybrid Funds
These invest 65-80% in equities and the balance in debt. They are appropriate for investors seeking high growth who are prepared to accept moderate risk.
2. Conservative Hybrid Funds
75-90% of these funds are invested in debt and the remaining is allocated to equity. For newbies who want a stable foundation with just a modicum of equity appreciation, they’re fine.
3. Balanced Hybrid Funds
They put 40–60% in equity, the balance in debt. That makes them a good choice for medium-risk investors.
4. Balanced Advantage Funds (Dynamic Asset Allocation Funds)
Here the fund manger dynamically adjusts the equity-debt ratio depending on market situation. This variety is for investors who are reluctant to time the market on their own.
5. Multi-Asset Funds
These schemes invest across at least three asset classes which could be equity, debt and gold. They offer great diversification, mitigating risk even more.
Why should beginners go for hybrid funds?
- Lower Risk in Comparison with Equity Funds – Because of the debt component which reduces volatility.
- Equity Growth Potential – The equity tranche provides long-term growth.
- Diversification – You don’t place all your money in one type of asset.
- Newbie in Stock Market – Newbies can try their hands on stock with less fear.
- Professional Management – Allocate and rebalance managed by the fund managers.
Risks of Hybrid Funds
- Not Without Risk – Still, exposure to stocks isn’t risk-free.
- Moderate Returns -They may offer lesser returns as compared to pure equity in the bull markets.
- Expense Ratio – The cost of managing the fund can decrease your return.
Getting Started with Hybrid Funds
- Decide Your Risk Appetite – If you are conservative, choose debt-heavy hybrid funds. If you want growth, choose equity-heavy funds.
- Set Investment Horizon – For short-term (2–3 years), conservative hybrids are better. For long-term (5+ years), aggressive or balanced hybrids work well.
- Start with SIP – A Systematic Investment Plan (SIP) allows you to start with as little as ₹500 per month.
- Choose Reputed AMCs – Always select mutual funds managed by trusted asset management companies.
- Track but Don’t Panic – Review performance once a year instead of checking daily.
FAQs:
Q1. Are hybrid funds good for new investors?
Yes, hybrid funds are great for beginners because they offer both growth and safety.
Q2. Can I get negative returns in hybrid funds?
Yes, hybrid funds do not come devoid of risks. But the debt component of the fund limits the loss compared to an all-equity one.
Q3. What is the ideal duration I should stay invested in hybrid funds?
A time period of 3 to 5 years at the least is advisable for a stable return.
Q4. Balanced vs hybrid funds: What’s the difference?
Balanced funds are part of the hybrid fund segment. Hybrid funds come in various forms, including aggressive, conservative, balanced and multi-asset.
Q5. What is better, SIP or lumpsum in hybrid funds?
For new comers, SIP is the best as it averages the cost and minimizes risk.
