Mutual funds offer wide variety of schemes in order to meet the needs and goals of the investors. Investors willing to invest in equity can invest in equity-oriented schemes, and investors with lower risk appetite can go for debt funds. Now question arises what if an investor wants to invest in variety of assets at same time, then where should they invest? The answer to this question is hybrid funds. Hybrid fund is an investment fund that characterized by diversification among two or more asset classes. These funds generally invest in a mix of stock and bonds.
There has been steady increase in net inflow as well as AUM of hybrid funds. As per SEBI, hybrid funds have been further divided into sub-categories. Explanation to each of them is given below –
Conservative Hybrid Fund
This is open ended hybrid scheme which primarily invests in debt instruments. As per SEBI guidelines conservative hybrid funds can invest 75% to 90% in debt instruments and 10% to 25% in equity and equity-related instruments.
Balanced Hybrid Fund
This is open ended hybrid scheme which primarily invests balancing equity and debt instruments. As per SEBI guidelines, Balanced hybrid funds can invest 40% & 60% of total assets in equity and debt instruments respectively and vice-versa.
Aggressive Hybrid Fund
This is open-ended hybrid scheme pre-dominantly investing in equity and equity related instruments. As per SEBI guidelines, aggressive hybrid funds can invest 65% to 80% in equity and equity-related instruments and 20% to 35% in debt instruments.
Dynamic Asset Allocation or Balanced Advantage Fund
This is open-ended hybrid scheme which invests in equity and debt instruments. The investments are managed dynamically as per the conditions of the market.
Multi Asset Allocation Fund
This is an open-ended hybrid scheme which invests in at least three asset classes with minimum allocation of 10% in each asset class. Asset class includes equity instruments, debt instruments, gold, real estate, etc.
This is an open-ended hybrid scheme investing in arbitrage opportunities. As per SEBI guidelines, arbitrage funds should invest at least 65% of total assets in equity and equity-related instruments.
Equity Savings Fund
This is an open-ended hybrid fund investing in equity, arbitrage and debt. As per SEBI guidelines equity savings funds should invest at least 65% of total assets in equity and equity-related instruments and at least 10% of total assets in debt instruments.
Hybrid funds offer higher returns as compared to fixed income instruments and pure debt instruments. We have discussed different sub-categories of hybrid funds which might seem similar but they do vary by the way they are operated. Investors should assess their needs, goals, investment horizon and risk appetite before investing in any of the funds if they match with any particular fund then they can consider investing in that particular fund.