Everything you need to know before investing in hybrid funds

Mutual funds are professionally managed investment funds. As an investment option, they come with a lot of variations. One of these variations is hybrid funds, which are also referred to as balanced funds. “What is a hybrid fund?”, you may ask. To put it simply, these types of funds are known for investing in a combination of equity and debt instruments/securities with the help of a single fund. Because of the aspect mentioned afore, hybrid funds are also referred to as multi-asset funds. But, if you are interested in investing in this type of investment scheme, you need to be aware of the facts that are listed below:

1. There are variants of hybrid funds:
It is of utmost importance to remember that hybrid mutual funds themselves come with several sub-categories. The different types of hybrid funds are mentioned below:
• Aggressive hybrid funds: They are open-ended schemes that invest primarily in equity and its related instruments. This type of hybrid fund may have the potential to generate income. That’s because of the high exposure to equity and its related instruments. But, it is important to remember that you need to brace yourself for some risks while investing in an aggressive hybrid fund.

• Conservative hybrid funds: A conservative hybrid fund is a type of scheme that invests in fixed income providing securities like T-bills, money market instruments, corporate bonds, certificate of deposit (CD) and commercial papers (CP). The remaining assets are invested in equity and its related instruments.

• Dynamic asset allocation fund: In accordance with its name, a dynamic asset allocation fund diversifies its investments by investing in both debt and equity. This type is suitable for investors who seek returns over a longer period regardless of the market conditions.

• Multi-asset allocation fund: A multi-asset allocation fund frequently invests in more than one asset class. After thoroughly studying the market conditions, the professional fund manager will either increase or decrease its allocation to a particular asset class.

• Arbitrage fund: In an arbitrage fund, fund managers will usually purchase stocks in the cash market and after doing so, they will sell them in the futures market. Arbitrage hybrid funds are tactically exposed to things like debt, equity and money market instruments.

• Equity Savings Fund: This type of hybrid fund invests in things like equity and arbitrage opportunities in the derivative and cash segments of the equity market and debt. If an investor is looking for long-term wealth acquisition by investing in arbitrage opportunities that have considerable equity exposure, this type of fund might be ideal for them.

2. They are convenient:
Another major characteristic of hybrid mutual funds is that they will introduce an investor to things like equity, gold-related instruments, debt and other asset classes. Doing so will save investors the hassle of investing in asset classes separately. Investing in a hybrid fund will also reduce the costs involved in investing in different asset class-based funds.

3. There are benefits of investing in different asset classes:
Consider this scenario. You are a new investor and decide to invest your asset into hybrid funds and as a part of the investment plan, you put your money into different asset classes. So, when you begin enjoying returns in the future, you will gain from your investment not only in one but more than one asset class.

4. The funds can be easily diversified:
A balanced fund is known for offering investors an option to diversify their investments. This type of smart investment plan allows them to put their money on both equity and debt. When share prices fall, the debt part of these investment plans may cushion the fall. Suppose you have chosen to put money in a hybrid mutual fund when the market is going through a bear phase. Despite that you don’t need to worry about returns since the debt component of the plan may ensure that these funds might be able to withstand the low-performance shocks of a stock market that is going through a rough phase.

5. An SIP can be used:
Another major advantage of a hybrid fund is that a fund manager can invest a small part of the investor’s income each month through a systematic investment plan (SIP). It is a prudent option to take the SIP route as hybrid funds have a higher component of equity and that means one needs to brace oneself for some risk.

To understand whether hybrid funds are ideal for your financial goals, you could consult your financial advisor.

Statutory Details: Axis Mutual Fund has been established as a Trust under the Indian Trusts Act, 1882, sponsored by Axis Bank Ltd. (liability restricted to Rs. 1 Lakh). Trustee: Axis Mutual Fund Trustee Ltd. Investment Manager: Axis Asset Management Co. Ltd. (the AMC). Risk Factors: Axis Bank Limited is not liable or responsible for any loss or shortfall resulting from the operation of the scheme. No representation or warranty is made as to the accuracy, completeness or fairness of the information and opinions contained herein. The AMC reserves the right to make modifications and alterations to this statement as may be required from time to time.

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