Why is it better to have a hybrid fund in your portfolio?

3 Mins read

Today, we are spoilt for choices. Be it shopping for apparels, getting a new bike, investing in a property, or choosing a refreshing beverage, there are options in almost every product category. So is the case with investment products. The Indian investor has a plethora of investment schemes to choose from. This can be good or bad depending on who you are. If you are someone who is new to investing, you might not be able to distinguish two investment products and end up choosing one that doesn’t align with your investment objective.

Hence, before making any type of investment, retail investors are expected to determine their risk appetite. A risk appetite is nothing but an individual’s ability to take a certain amount of risk with their finances with the hope of earning some capital gains in future. If you are someone who is young, aggressive and seeking capital gains through market linked schemes, you can consider investing in mutual funds. However, if you have zero risk appetite and do not wish to take any chances with their investments you may settle with conservative schemes. Having said that, no investment is considered to be risk free, there is always some risk associated with every investment.

Mutual funds are becoming the choice of several young as well as seasoned investors. They are supposed to carry a diversified portfolio, thus offering investors with active risk management. Also, mutual fund investors do not need to have in depth knowledge about the markets. That’s because mutual funds are generally managed by experienced fund managers who implement an investment strategy to buy/sell securities to help the scheme achieve its ultimate goal.

SEBI, the regulatory body of mutual funds here in India describes them as, “a mechanism for pooling the resources by issuing units to the investors and investing funds in securities in accordance with objectives as disclosed in the offer document.”

Mutual funds invest across multiple asset classes including equity, debt, government securities, corporate bonds, etc.

What are hybrid funds?

Hybrid funds are those mutual funds that invest in both debt and equity related instruments. Whether a hybrid fund will invest more in equity or debt might totally depend on the risk profile and nature of the mutual fund scheme. Since these funds invest in both equity and debt, they are also referred to as balanced funds.

Why is it better to diversify your investment portfolio with hybrid funds?

Hybrid funds can be a great way for investors to diversify their investment portfolio. Here is how:

Hybrid funds are professionally managed: Hybrid funds are managed by an exceptional staff of fund managers. The fund house owning these funds host a team of expert researchers and analysts who play an integral part in making the fund achieve its goal. Hence, even those who lack knowledge about the financial markets can invest in hybrid funds.

Hybrid funds are ideal for long term investment: If you are someone who has a long term investment horizon and wishes to achieve a wealthy corpus, you can consider investing in hybrid funds. Hybrid funds invest a certain portion of their assets in equity. Historically, investments made in the equity markets have churned better results when one remains invested for the long run. Hence, those with a long term investment horizon can consider investing in hybrid funds.

Hybrid funds offer multiple investment options: Mutual fund investors seeking investment in hybrid funds have two payment options. They can either make a onetime lumpsum investment or opt for SIP. A Systematic Investment Plan is suitable for those seeking systematic and regular investments in hybrid funds. Investors do not need to physically visit the fund house for making their monthly investments in hybrid. With SIP, they can invest from the comfort of their laptop or mobile phone with a decent internet connection.

There are some of the reasons why investors should consider adding hybrid funds to their portfolio. However, they should remember that these funds do not promise any fixed returns.