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How Are Hybrid Funds Beneficial? Which Are The Top-performing Ones?

By Author: Swarali Chavan
Total Articles: 37

When one decides to invest in mutual funds, there are numerous funds to choose from. The mutual fund structure comprises of open-ended and close-ended funds. With regards to assets, mutual funds are classified as equity funds, debt funds, and hybrid funds.

Broadly, if the investor is seeking 5-year investment, then equity funds are perfect. For short-term investment and high risk, debt funds are the way to go. And if the investor wishes to incur balanced profit and loss, then hybrid funds are ideal. So, what is hybrid fund? Earlier known as balanced funds, is a combination of equity and debts. i.e. stocks and bonds. These funds can vary or remain fixed over time. These funds have a different combination of equity and debts. Hybrid funds are the best suited for risk-averse people. It involves low-risk, average capital appreciation and generates high returns.

Now that we have understood what is balanced funds, what are its benefits?

• Hybrid funds offer higher returns as the fund is a combination of both the assets (shares and securities)
• Investors have the liberty to switch the funds, depending on the market conditions. They make these changes regarding the future growth
• They provide diversity as it consist of best bonds and stocks, which assures lower risk and good profits
• The investor does not need an intermediary to handle this investment. However, to switch between the funds, the investor has to consult a fund manager

There is a hybrid fund for every investor:

1) Debt-oriented funds: These funds comprise of aggressive, moderate and conservative funds. These schemes have different exposure to debt and equity. Aggressive and moderate hybrid funds have 30 per cent equity exposure respectively. Meanwhile, traditional funds have a 10 per cent or lesser equity exposure. Investors are assured to receive long-term capital gains with a holding for 3 years.

2) Equity-oriented funds: They focus solely on equities, and hence, are highly volatile. To earn better tax benefits and capital gains, it is ideal to expose 65 per cent of the balanced funds to equities. Balanced funds comprise 50 per cent of equity and equity-related instruments. The remaining are invested in money market and debt instruments. If the balanced funds are well-maintained for a year, the returns are tax-free.

3) Arbitrage funds: They exploit the market fluctuations by investing 65 per cent of their assets in equity and equity-related schemes. Arbitrage funds make money by selling and purchasing securities on different stock exchanges.

4) Asset allocation funds: Here the asset's exposure to debt and equity keep varying. Most of the assets under this fund are from the fund's scheme.

Now that know what are hybrid funds all about, which are the best performing ones in the Indian market? The best ones presently are ICICI Pru Capital, Kotak Multi Asset Allocation Fund, SBI Dynamic Asset Allocation, DHFL Pramerica Hybrid FTF and Angel BEE.

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