Mutual funds are becoming more and more popular, especially among millennials because of the unique attributes that they carry. Mutual funds have generated far better returns than any other conventional scheme in the past and continue to deliver decent returns in the present as well. Now people have realized that investing in fixed income securities is futile because their money is locked in for longer durations and there is no liquidity. Also, investors are unable to accept the fact that conventional schemes are offering fixed returns of 4 percent to 5 percent whereas mutual fund schemes are offering anywhere between 12 percent to 15 percent on average.
The thing about mutual funds is that they can be a tad confusing for new investors since there are a wide number of investment schemes to choose from. Financial experts generally recommend investors have a well diversified portfolio so that the overall investment risk is mitigated, and one can benefit from multiple asset classes. But what if we told you there is an investment scheme that lets you benefit from both equity and debt asset class through a single investment? Yes, we are talking about hybrid mutual funds.
What is a hybrid mutual fund?
As mentioned earlier, hybrid funds invest in both equity and debt asset class. Investors looking to benefit from multiple asset classes through a single investment can consider adding hybrid funds to their investment portfolio. Also referred to as balanced funds, hybrid funds can be equity oriented and debt oriented. An equity oriented hybrid fund invests 65 percent to 80 percent of its total assets in equity and remaining in debt. Similarly, a debt oriented hybrid fund invests a majority of its investment corpus in fixed income securities and the rest is invested in equity.
Why must investors consider adding hybrid funds to their investment portfolio?
Hybrid funds can be a great choice of investment, but investors should only consider investing in a scheme that is apt for their investment objective and financial goals.
Choose from a wide range of schemes
For every type of investor, there is a hybrid scheme available. For someone who wants more equity exposure, such investors can consider aggressive hybrid funds. Investors seeking less exposure to equity and more exposure to debt asset class can consider conservative hybrid funds. Investors who want to invest in a hybrid fund that invests in more than two asset classes can consider multi asset allocation fund. Other types of hybrid funds include arbitrage funds, dynamic asset allocation funds, equity savings funds, etc. among others.
Safeguards investments during volatility
During volatile markets, hybrid funds may be able to provide better capital protection than equity mutual funds. Since they invest a portion of their total investments in debt, they might be able to withstand market volatility in a better way. Also, when the markets turn volatile and equity markets are underperforming, investments in debt assets may be able to offer the necessary cushion and allow a hybrid fund to deliver.
Investors can invest for longer durations with SIP
Investors with a medium or long term investment horizon can consider starting a monthly SIP in hybrid funds. A Systematic Investment Plan is a simple and effective way to saving and investing a fixed sum regularly. Investors can decide on the monthly SIP sum and continue investing this sum in any hybrid scheme of their choice till their investment objective is accomplished.