Personal Finance

All you need to know about Hybrid Funds4 min read

January 3, 2020
Hybrid Funds

All you need to know about Hybrid Funds4 min read

Equity fund or Debt fund –  where to invest? Making a choice between the two can be difficult sometimes, especially when you are apprehensive of the risks involved in stocks and the moderate returns related to debt funds. Instead of going for one fund, you can have the best of both by investing in Hybrid Funds. Let’s get familiar with the different aspects of Hybrid Funds.

What are Hybrid Funds & how do these work?

Hybrid Funds are a type of mutual fund schemes which invest across different asset classes like stocks, bonds, and gold, in specific proportions. This allows you to earn higher returns than fixed interest generating schemes like plain vanilla debt funds. At the same time, your overall portfolio risk is relatively less as compared to when you invest only in pure equity funds. The fund value may vary depending upon the extent of stocks present in your portfolio. The structure of hybrid funds is such that the portfolio is well-diversified by default. The fund manager chooses the best of stocks and bonds through market research to deliver optimal returns on your investment. Thus, hybrid funds aim at growing wealth while maintaining a relatively stable portfolio.

What are the different types of Hybrid Funds?

Hybrid funds are an ideal investment option to harness the growth potential of different asset classes at a nominal invested capital. Let’s look at the various types of hybrid funds as identified by SEBI.

  • Conservative Hybrid Funds:
    These open-ended hybrid schemes invest between 75% and 90% of their total assets in debt securities. The remaining 10% to 25% of the total assets is invested in equity and equity-related instruments. 
  • Balanced Hybrid Funds:
    These open-ended funds maintain a well-balanced portfolio of both debt and equity-related instruments. The fund manager invests between 40% and 60% of the fund’s total assets in stocks of companies. At the same time, he/she invests between 40% and 60% of the total assets in debt securities. The fund is not allowed to do any kind of arbitrage.
  • Aggressive Hybrid Funds:
    Being moderately high-risk funds, these open-ended schemes comprise more of stocks than bonds. The fund manager invests between 65% and 80% of the total assets in equity and equity-related instruments. Along with this, an allocation between 20% and 35% of total assets is done towards debt securities.
  • Dynamic Asset Allocation/Balanced Advantage Funds:
    These open-ended funds invest in a diversified portfolio comprising of stocks as well as debt instruments. Unlike other hybrid funds, these open-ended funds do not follow a fixed asset allocation. The fund manager manages the portfolio dynamically to earn relatively higher risk-adjusted returns.
  • Multi-Asset Allocation Funds:
    These open-ended funds invest in multiple asset classes – primarily equities, debt and money market instruments, and gold. The fund manager needs to allocate at least 10% of the total assets in each of the underlying asset classes.
  • Arbitrage Funds:
    These open-ended funds generate gains by utilising arbitrage opportunities existing between the cash and derivatives markets. The fund manager allocates at least 65% of the total assets primarily to equity and equity-related instruments. The rest of the fund’s assets are allocated towards debt securities and money market instruments.
  • Equity Savings Funds:
    These open-ended funds invest in stocks, debt securities, and arbitrage. The fund manager allocates at least 65% and 10% of total assets in debt and equity and equity-related instruments respectively. The Scheme Information Document should mention the extent of hedged and unhedged positions. Besides this, the offer document may also contain details about asset allocation under defensive considerations.

Best Hybrid Funds

Mutual funds are a smart and efficient way to grow wealth and investing in hybrid funds allows your portfolio to be well-diversified as well. Here is the list of the best hybrid funds.

How to Invest in Hybrid Funds via Paytm Money?

Investing in hybrid funds is a smart way to park your funds for your medium-term financial goals. The Paytm Money app and Paytm Money website offer only the top-rated funds for you to pick from. Here are a few steps that you need to follow to invest in hybrid funds:

Step 1: Download the Paytm Money app to complete your KYC & become investment-ready within minutes

Step 2:  Select ‘MF Direct’ option. You will land on the Mutual fund dashboard screen. Go to ‘Invest’ tab from the bottom bar.

Step 3: Select ‘Balanced tab in the ‘Fund Category’ section. Select from Aggressive, Dynamic Asset Allocation and Arbitrage Funds’.

Step 4: Select a fund of your choice and ‘Invest Now’ via SIP or the Lump-sum mode and enter the amount of investment. Tap on ‘Proceed to Payment’.

Step 5: Make payment using Auto Pay, Netbanking or Debit Card. Tap again on ‘Proceed to Payment’ to complete the transaction.

Before making an investment decision, however, analyze your risk tolerance and the duration for which you are planning to stay invested. 

If you are unsure about how to get started, try the Paytm Money app which is trusted by over 2.5 million users. Open your investment account online & start investing within minutes – It’s simple & convenient.