What are hybrid mutual funds?
Hybrid mutual funds, like any other type of mutual fund scheme, attempt to increase the value
of your investment through either capital appreciation or establishing a respectable level of
returns. Hybrid mutual funds came about as a solution to the individual drawbacks of Equity and
Debt mutual funds. This is explained below:
Companies that create mutual fund schemes are called Fund Houses or Asset Management
Companies (AMCs). The professionals who study the markets and pick companies to invest
in are called Fund Managers. Fund managers spend a great deal of time analysing markets
and studying different sectors of the economy to figure out which companies are most likely to
turn a profit - in different time frames - and choose the best option.
- - Equity mutual funds invest
primarily in the stocks and equity shares of companies and
aim to generate capital appreciation. Thus, equity funds hold the most potential to
generate higher returns, but also carry more risk than debt funds.
- - Debt mutual funds invest
primarily in debt securities, money market instruments,
treasury bills, corporate bonds, etc. in order to generate returns. Debt funds aim to
generate a regular income and are far less risky than equity funds (but don’t have the
earning potential of equity funds).
This is where Hybrid Funds come into play. Hybrid mutual fund schemes diversify the investment
and attempt to get the best of both worlds - capital appreciation through equity investing as
well as stability and returns through investments in debt instruments. Hybrid schemes use asset
allocation, market analysis and portfolio diversification to ensure maximum returns at minimal
A hybrid mutual fund scheme that invests over 65% of its corpus in equities and the remaining
in debt is called an Equity-Oriented Hybrid Mutual Fund. Conversely, a hybrid mutual fund
scheme that invests over 65% of its corpus in debt instruments and the remaining into equity is
called a Debt-Oriented Hybrid Mutual Fund.
The process by which the scheme invests across asset classes (equities, bonds, cash, gold,
etc.) is called asset allocation.
Investing in hybrid mutual funds in India is a very popular practice for both risk-taking and
risk-averse investors who wish to increase their wealth and also mitigate risk.
How does a hybrid mutual fund work?
Hybrid mutual funds invest across different asset classes, aiming to minimize risk and
establish capital appreciation.
A well-managed hybrid mutual fund scheme (of any kind) aims to generate income in the short
term and capital appreciation in the long term - through a well-planned distribution of the
investment corpus across different asset classes. For long-term capital appreciation, the
scheme will invest in equity stock of companies, and for short-term income generation, the
scheme will invest in debt instruments and government bonds.
What are the types of hybrid mutual funds?
There are different types of hybrid mutual fund schemes based on asset allocation:
Equity-Oriented Hybrid Mutual Funds:
Also known as Balanced Funds, equity-oriented hybrid schemes allocate over 65% of their
investment resources towards purchasing the equity stock of companies. The remaining
35% or less is invested in debt securities or other opportunities. These balanced funds
allow the investor to explore the possibility of high returns and reduce the risk
exposure at the same time.
Debt-Oriented Hybrid Mutual Funds:
Also known as Monthly Income Plans, hybrid fund schemes that invest over 75% of their
resources in treasury bills, money market instruments, bonds, and other debt
instruments are called debt-oriented hybrid schemes. The remaining 25% or less is
invested in equity stocks on companies and cash/cash equivalents. As the name
indicates, these plans offer the possibility of providing the investor with a regular
income in the form of dividends. These dividends can be paid out at different
intervals, depending on the investor’s choice - annually, semi-annually, quarterly, or
even monthly. An additional facility offered by these funds is the “growth option”
which reinvests dividends to facilitate capital appreciation.
These funds simultaneously purchase and sell the same shares in different markets,
exploiting the difference in trade value of the shares to generate profitable gains.
Shares are purchased in the cash market and simultaneously sold in the futures market,
making use of the price differential to create a profit.
How do arbitrage funds work?
The cash market trades on the current value of stocks at their spot price. This means
that if an investor purchases Rs.5,000 worth of equities in the cash market, he
immediately owns the equivalent shares in the target company as soon as the trade is
completed. These shares are bought at the spot price.
The futures market (or derivatives market) reflects the perceived (or projected) value
of a stock on a certain date in the future (based on calculations and projections). The
stock purchased and sold in the futures market only changes hands on the maturity date
of the contract.
Thus the difference in price of the same stock in these two markets allows arbitrage
fund managers to generate a profit.
Who should invest in hybrid mutual funds?
Hybrid schemes have a lot to offer beginners and well as seasoned investors.
Hybrid mutual funds have been designed and subcategorized in order to cater to the widest range
of potential investors.
New investors, i.e., those new to the world of mutual funds can figure out their risk profile
and investor profile by looking through and studying hybrid mutual fund schemes, as these
schemes have a little bit of everything. New investors can gain a deep understanding of mutual
fund investments during their hybrid scheme investment process. Call us, we’d love to take you
through the process!
Seasoned investors, i.e., those who have been investing for some time regardless of positive or
negative gains, can also benefit greatly from the right hybrid fund scheme. Knowing one’s risk
profile and goals are essential to successful investing, and hybrid schemes lay out their goals
and investment mandate in the offer document.
Hybrid mutual funds are ideal for a wide variety of investors, risk profiles, and investment
There are equity-oriented schemes for the risk-taker and debt-oriented schemes for the
risk-averse. Debt-oriented hybrid funds can be used as monthly income generating schemes for
those that want to establish an alternate source of income, and there are arbitrage schemes for
low-risk investors who want stability from equity.
Any person who wishes to find a good place to enter the world of mutual fund investments must
check out hybrid mutual funds.
Why invest in hybrid mutual funds?
Ideally, you’d invest in hybrid funds if you wish to add a huge amount of portfolio
diversification to your existing portfolio. Hybrid fund schemes are also a safe bet for new
investors - as they efficiently allocate funds in the right proportion between asset classes
and industries - based on the investment mandate and the fund type.
Active risk management, portfolio diversification, and asset allocation are why most people
invest in hybrid mutual fund schemes.
Investing in hybrid mutual funds in India
In India, investing in hybrid mutual funds is a quick, easy, and safe process:
Log on to www.fundsindia.com
Create a lifetime free investment account and sign in
Submit your KYC documents online - an efficient, paperless and
Talk with our team of investment advisors and market analysts about
your investment history, risk-taking ability, investable amount, etc. to find the right mutual
fund scheme for you
Invest, sit back and watch your wealth multiply. You can watch your
money grow on the FundsIndia investment dashboard - either online or on your smartphone through
. You can track and manage your investments in the highly intuitive app-based
interface. Buy, sell, trade at the touch of a button
Ways to invest in hybrid mutual funds - lump sum or SIP
The actual mutual fund investment process can be initiated and maintained in two methods:
Lump Sum Investing
- Lump Sum Mutual
is for when you wish to invest your corpus (money for investing) at
is for when you
wish to invest small amounts of money at regular intervals for a specific tenure.
For example, you can set it up to auto-deduct Rs.x two days after you get your
salary, for the next 6 months. FundsIndia’s support staff can help you find the
best scheme in which to do this. But this approach cannot be taken for investments
in fixed maturity plans - as the investment has to be done during the initial offer
How to calculate the value of a hybrid mutual fund?
One can invest in hybrid mutual funds through SIP method or through a lump sum investment, both
of which have their own benefits and drawbacks. The calculator will consider the investment
method as well. Bear in mind, however, that some types of mutual fund schemes like Fixed
Maturity Plans cannot be availed through the SIP method.
The value of a mutual fund scheme is determined through its Net
or NAV. The NAV of
mutual fund schemes rises and falls based on the performance of the instruments and assets in
which they’ve invested.
Best Hybrid Mutual Funds to Invest in 2019