What Are Hybrid Mutual Funds? What Advantages Do They Offer?
Mutual funds have gained immense popularity among investors owing to their being less risky and generating higher returns. Mutual funds broadly can be classified into three categories- equity funds, debt funds, and hybrid funds.
Equity funds are suitable for those who are ready to take high risks. Debt funds, on the other hand, are suitable for those who want to stay safe with their market investments. While hybrid funds are suitable for those who are looking forward to getting the best of both debt and equity funds.
What Are Hybrid Funds?
Hybrid funds aim to create a balanced portfolio for their investors. They are focused on generating regular income along with capital appreciation in the long run for the investors. As the name suggests, hybrid funds invest both in debt and equities. The objective here is to avoid risk concentration by achieving diversification.
A perfect blend of debt and equity investments offered by hybrid funds offers higher returns than debt funds and has lower risk, unlike equity investments. However, an individual’s choice of hybrid mutual funds depends on their risk preferences and investment objectives.
Hybrid Mutual Fund Advantages
The various advantages offered by Hybrid mutual funds are as follows:
Access to Multiple Asset Classes
One of the biggest advantages offered by hybrid mutual funds is that instead of investing in a single asset class they invest in multiple asset classes like equities, debt, gold, silver, commodity, etc. An investor can thus invest in multiple asset classes by investing in a single product.
Active risk management
Portfolio diversification and asset allocation offered by hybrid funds are yet another reason for choosing hybrid funds over debt and equity funds. The risk here is managed by combining non-correlated asset classes like debt, equity, gold, etc.
Increased Diversification
One of the famous sayings related to the stock market is not to put all your eggs in a single basket. Investing in hybrid mutual funds ensures asset allocation and portfolio diversification. Your investment is not limited to a single asset class. You can minimize your financial risk and maximize your capital gains with diversification. Decide on the proportion of risk you want to take and you’ll be able to create wealth in the long run with consistent returns.
Lower Expense Ratio
Hybrid funds help you save a good amount of money through an expense ratio. If you proceed forward to invest in separate funds like equity funds, gold funds, and debt funds, you will end up paying a higher expense ratio. While if you invest in a single hybrid fund investing in these asset classes you’ll pay the expense ratio for a single fund.
Automatic Rebalancing
Mutual fund investments are preferred for the professional expert advice they bring along. Hybrid mutual funds bring the advantage of expert advice and timely portfolio rebalancing with them. Fund managers manage the hybrid fund shift between equity, debt, and gold allocations as per the market movements and the interest yields thus freeing the investors from the responsibility of rebalancing their portfolios manually.
Suitable for Various Risk Profiles
Hybrid funds offer varying levels of risk tolerance funds. From conservative to moderate, and aggressive you can find all types of hybrid funds. Equity-oriented schemes are suitable for risk-takers. Debt-oriented schemes attract risk-averse investors. For those who don’t want to invest in fixed asset allocation Dynamic Asset Allocation Fund is the right choice.
Who Should Invest in Hybrid Mutual Funds?
Hybrid funds are considered safer than equity funds and offer higher returns when compared to debt funds. Hence, they are a suitable investment option for conservative investors. Investors who are new to the world of investing can opt for investing in hybrid funds as they offer the potential to earn high returns at a comparatively lower risk.
