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Who Should Invest In A Hybrid Mutual Fund?

By Author: Bhagath Varma
Total Articles: 12

Have you ever watched kids playing a game of musical chair and the way they run to cover the gaps between the chairs while slowing down their pace near a chair hoping for the music to stop so that they can land safely on the chair close by? Well some grown-ups too behave pretty much the same when it comes to putting their hard-earned money to work. The kids toggle between running and walking because the proximity of a chair gives them a sense of security that when the music stops, they would be safe. Similarly, some of our grown-up friends too want to make some good money when the markets are soaring high, but they also fear the party may end anytime abruptly and fear loosing all their money. So where should such people put their money to grow who like to enjoy the benefit of investing in stocks but are unwilling to accept the risk that comes with it?
The best option for such investors would be hybrid mutual funds that offer a moderate combination of risk and return by investing a good part of the portfolio in equities (stocks) and the balance in debt securities like corporate and government bonds, bonds issue by banks and money market instruments like Treasury bills, Certificate of Deposits (CDs), Commercial papers and Banker’s Acceptance.
Most of the hybrid mutual funds or balanced funds as they are commonly known as tend to follow an approximately 60:40 allocation between equities and debt. This kind of allocation is just an approximation of the usual trend seen in the asset allocation pattern of such funds. You should refer to the asset allocation mentioned in the Scheme Information Document(SID) of a specific hybrid mutual fund before investing in it.
How to select a Hybrid Mutual Fund
Within this category, there are many that differentiate themselves based on the asset allocation they make among equity and debt. For instance, an aggressive hybrid fund will tend to allocate a proportionately high percentage of its assets to equities while a conservative hybrid fund will disproportionally allocate funds to debt and money market instruments. The moderate hybrid funds or balanced funds tend to take the middle path by allocating nearly same proportion of assets among equity and debt.
To select a suitable hybrid fund, look at its asset allocation and investment objective provided in the SID. This will help you judge whether a fund matches your preference and ability to take risk that is commensurate with the kind of returns you are seeking.
Who should invest in a Hybrid Mutual fund
Other than our musical chair lover friends cited in the beginning, these funds are suitable for retired people who prefer a safer haven for their entire life’s savings but would also like to gain some good returns to stay ahead of inflation and fund their medical expenses or travel plans. These funds are also suitable for new investors who would like to experience the benefits mutual funds but are worried about the risk of loss. Even those who prefer to seek a return higher than that provided by debt mutual funds can opt for some of the conservative hybrid funds available in the market.
If you are still feeling puzzled about this category of mutual funds, then the best option for you is to visit Mutual Fund Sahi Hai and seek his expert guidance.

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