Why is a hybrid fund better for you?

There are so many mutual funds available for investment, it might confuse the Indian investor. Especially if you are entirely new to investing, navigating through various schemes and narrowing down to one scheme that ticks all the right boxes can become a tad difficult. This is why investment planning is essential and so if financial planning. The first step of financial planning is determining your short term and long term goals. When you know what you want to achieve with your finances, you may get a clear perspective on where and how much to invest.

One unit of a mutual fund is a combination of multiple stocks and other money market instruments. This is why they are supposed to carry a diversified portfolio. Mutual funds are managed by professional fund manager(s). It is the duty of the fund manager to buy/sell securities in accordance with the scheme’s investment objective. Investors with a common investment objective invest in a particular mutual fund scheme. The fund house accumulates this pool of funds and mutually invests across various money market instruments depending on the nature of the scheme and the risk profile that it carries.

However, in order to invest in mutual funds one needs to take calculative risk. For this, investors should understand their risk appetite and make sure that they are investing depending on their risk appetite. There are multiple investment schemes catering to investors carrying different risk appetite. Some of the major mutual fund categories include equity, debt, hybrid, solution oriented, index, ETF, gold etc. Among these, hybrids are considered by several investors because of their unique asset allocation strategy.

What are hybrid funds?

While equity funds invest predominantly in stocks and equity related instruments and debt funds invest in fixed income securities, hybrid funds are those mutual funds that invest in both equity related instruments as well as fixed income debt securities. Because these funds invest in both asset classes, they are also referred to as balanced fund by many.

Here’s why hybrid funds are a good investment choice

There are multiple hybrid schemes which investors can consider investing in depending on their risk appetite, investment horizon and investment objective. Suppose you are someone who wants their portfolio to consist of more debt assets and fewer equity assets, then you can consider investing in a conservative hybrid fund. That’s because a conservative hybrid fund invests the majority of its assets in debt securities. Similarly if you want your hybrid fund to be more equity oriented, you can consider investing in aggressive hybrid funds.

Hybrid funds offer the right balance which is necessary for a mutual fund portfolio. The equity element of the hybrid fund gives it an opportunity to generate income while the debt element provides cushion and safety when the equity assets are underperforming. If you have any medium or long term financial goals which you want to achieve in near future, you can consider investing in hybrid funds.

Also, those seeking investments in hybrid funds have multiple investment options. They can either make a lump sum investment or start a SIP in a hybrid fund of their choice. If they are not sure as to what that monthly SIP amount should be, they take the help of an online SIP calculator. This calculator will give them an approximate figure that they can achieve through systematic SIP investments. A Systematic Investment Plan allows investors to make small fixed investments at regular intervals in hybrid schemes. In the long run, these small investments can turn into a large corpus.

Hybrid funds are a decent investment option for anyone who wants to achieve capital appreciation over the long term. But if you are new to investing and feel that you need further assistance you can seek the help of a financial advisor.