“Balance” is not just a word for us. We always try to balance the different things in life. But do you know that you can go for this balance in case of mutual funds too?
Here, we are talking about Hybrid funds. It provides us a balance between equity schemes and debt schemes. But before talking about that, let’s talk about the types of schemes.
Generally, mutual fund schemes are divided into three types: Equity, debt, and hybrid. Equity schemes do invest in listed stocks of the stock market. They are considered to be riskier but can give good returns in long run. In the case of debt schemes, the money gets invested in treasury bills, corporate bonds, etc. They are considered to be safer. If you want to invest the money for the medium-term or short-term, then it might be a great option. You can opt for liquid funds if you feel you are not much of a risk-taker. Liquid funds also provide the facility of instant money withdrawal, which can prove to be a boon for you in times of emergency, but it has some limits for the withdrawal. Mostly, we know this much, but about hybrid funds maybe we need more awareness.
What are hybrid funds?
As the name suggests, hybrid means the mixture or the combination. Hybrid funds are a mixture of equity and debt. It carries a generally higher proportion of equity and less debt. The proportion for equity and debt in hybrid schemes is 65:35 generally. Different schemes may provide a different mixture of it. As it is a mixture of equity and debt, it can minimize the risk of equity schemes and can increase the returns of debt schemes. So, it provides a balance.
Benefits of hybrid funds:
Balance of risk and return:
As discussed above, it provides the balance of risk and returns. Equity schemes do carry risk and debt schemes may provide a lower return. So, the hybrid fund can combine them both.
Lower volatility:
Because it is a mixture of equity and debt, volatility is lower.
Diversification:
Diversification helps in minimizing the risk. Hybrid funds do provide diversification as it is a combination of equity and debt.
Who should invest?
Hybrid funds may be suitable for new investors. As the new investor, would not like to take more risk but may be attracted to more returns. Apart from that, investment in hybrid funds for 3 to 5 years can be considered good. But, you should invest for more periods if you can as more time horizon can provide you more return. Certain factors like risk expected returns, time horizon, etc. should be considered before going for it.
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