Hybrid mutual funds
Hybrid mutual funds invest in a combination of equity and debt instruments. It gives you a benefit of both equity and debt. Hybrid funds are good for first time investors as they get the growth of equities as well as the safety of debt instruments, which makes it a perfect blend. If you are a first-time investor, consider starting with hybrid funds instead of directly starting off with equities.
What are the different types of hybrid schemes?
Hybrid funds have total 7 different schemes:
Conservation hybrid fund
This fund invests pre-dominantly in debt instruments and some portion in equity instruments. They invest about 75-90% in debt instruments and 10-25% in equity instruments.
Balance hybrid fund
Balance hybrid fund invests in equity and debt instruments in equal proportion, but in most cases investment in equity instruments are slightly higher than debt instruments.
Aggressive hybrid fund
Aggressive hybrid funds invests predominantly in equity, about 65-80% and the remaining 20-35% is invested in debt instruments.
Dynamic assets allocation or balanced hybrid fund
This fund manages its equity exposure based on market conditions. This fund will increase its exposure in equity during bullish market and will decrease the exposure in a bearish market.
Multi-assets allocation
This scheme helps you in diversifying risk by investing in at least three asset classes – mainly equity, debt and gold with a minimum allocation of 10% in each asset class. However foreign securities will not be treated as separate class.
Arbitrage fund
An arbitrage fund makes money by buying and selling in different exchanges. This fund gives a return similar to liquid funds. Minimum investment is 65% of total assets. For taxation purposes these funds are treated as equity funds and the LTCG tax is also applicable.
Equity saving fund
Equity saving fund instruments invest in equity, debt and arbitrage. These funds have a minimum investment of 65% in equity related instruments. The net equity exposure is typically between 25-35%, these funds use arbitrage opportunities to take the total equity allocation to 65%. It invests a minimum of 10% in debt instruments. These funds are ideal for someone who has a moderate risk appetite.
A mutual fund company can offer either an aggressive hybrid fund or balanced fund.