7 Things You Should Know About Hybrid or Balanced Mutual Funds

The reason most of us are in the lookout for lucrative investment options is because we wish to improve our existing financial condition. But if you really want to become financially stable then you may have to be well organized with financial planning. Financial planning might help you in managing your money so that you are able to allot the right amount of money for your monthly expenses and invest the rest in schemes that fit your needs. The first step of financial planning is identifying your short term and long term goals. Once you know your goals, next thing to do is prioritize them so that you know where and how much to invest in order to achieve that goal. Saving money is another important aspect of financial planning. It gives you the power and liberty to regulate your savings and continue investing without facing a cash crunch.

The investment market is flooded with a plethora of financial schemes catering to the needs of almost every investor. You may choose to invest in a scheme depending on your risk appetite. For example if you are a risk averse individual who wants to stay away from volatile markets then you may have to settle with conservative investment avenues that offer low but fixed interest rates. On the contrary, if you are someone who is young and doesn't mind going the extra mile and taking the risk to invest in avenues that offer high risk rewards ratio, you may consider the option of investing in mutual funds.

What are mutual funds?

SEBI (Securities and Exchange Board of India), the regulatory body of mutual funds here in India describe 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.”

To simplify the same, mutual funds are professionally managed funds where the fund manager has the responsibility of buying and selling securities in accordance with meeting the scheme’s investment objective. Fund houses collect money from individuals having a common investment purpose and invest this pool of funds across the Indian economy in equity and other marketable securities including debt, call money, treasury bills, commercial papers, corporate bonds, etc. The performance of a mutual fund usually depends on the performance of its underlying assets.

Mutual funds are usually categorized as equity, debt, solution oriented, ETF and hybrid depending on certain unique characteristics such as risk profile, asset allocation, investment strategy, fund size, etc. Today we are going to focus on hybrid funds and tell you everything that you probably need to know about hybrid funds before you invest in them.

What is a hybrid fund?

Hybrid equity funds are those mutual funds which invest in equity and debt related instruments. Because these funds invest in both equity and debt.,

Things to consider before investing in hybrid funds

Investing in hybrid funds might seems like a good idea, however here are few things to consider before investing.

1. Investment objective: Hybrid funds generally aim to generate long term capital gains. So if your investment objective aligns with that of the hybrid fund, you may go ahead and make the investment. If you are looking for a pure equity fund you might have to look out for another mutual fund for investment.
2. Investment horizon: Hybrid funds usually require one to remain invested for a longer time period if they really want the fund to help them with some gains. So only if you have the patience to remain invested for the long run then you may consider investing in hybrid funds.
3. Risk involved: Since balanced funds allocate a certain percentage of their total assets in equity, this makes them highly volatile to market fluctuations. Hence, investors with a zero risk appetite might have to reconsider before investing in hybrid funds.
4. Expense ratio: Every mutual fund has recurring expenses that fund houses collect from investors in the form of expense ratio. Investors should make sure that they invest in a hybrid fund that has a low expense ratio so that it does not affect their gains.
5. Returns ratio: You must be aware of the fact that investments made in equity schemes do not guarantee returns. Hence, investors should keep this factor in mind as well while investing in hybrid funds.
6. Asset allocation: Although hybrid funds invest in debt and equity, the ratio is never fixed. Hence make sure that you invest in a hybrid fund whose asset allocation fits your investment requirements.

Here are some of the things you should know before investing in a hybrid fund. If you do not understand mutual fund investments feel free to seek the help of a financial advisor.

Mutual Fund Investments are subject to market risks, read all scheme related documents carefully.