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Investing in hybrid mutual funds is one of the best ways of diversifying your portfolio. While you might know why you should consider investing in hybrid funds, investors often get worked out on finalising the right hybrid fund scheme for their portfolio. This article will help you to choose the right hybrid fund for your goals.

What is hybrid fund?

A hybrid fund is a type of mutual fund that invests in both debt and equity securities. Hybrid funds can also have a mix of other asset classes like gold, cash and cash equivalents, etc. The equity part helps to ride the equity wave while the debt part acts as a cushion against extreme market turmoil. Hybrid mutual funds invest in treasury bills, government and corporate securities, stocks, and bonds to bridge the gap between equity and debt mutual funds. These funds can further be classified based on their equity exposure.

Types of hybrid funds

  1. Equity-oriented hybrid mutual funds – The fund invests at least 65% of their corpus in equity and equity-related securities.
  2. Debt-oriented hybrid mutual funds – The scheme invests at least 65% of their total corpus in debt securities.
  3. Monthly income plans – Such funds invest predominantly in fixed-income investments and a small portion of their corpus in equity and equity-related investments. This scheme offers regular income to its investors.
  4. Balanced hybrid funds – These funds invest around 40-60% of their total capital in debt and equity securities.
  5. Arbitrage funds – Arbitrage funds try to optimise returns by buying stocks at a lower price in one market and selling these stocks at higher price in another market.

Factors to consider while choosing an ideal hybrid mutual fund for you

After acknowledging the classification of hybrid mutual funds, you should keep the following pointers in mind while selecting a hybrid fund:

  • Check if the investment objective of the scheme is in line with your financial goals.
  • Know the extent of risk involved and ensure that it is line with your risk appetite.
  • Ensure that the cost of the fund’s units is friendly to your pockets.
  • Don’t forget to check for the fund’s past performance
  • Make sure that your objectives can be accomplished within the investment horizon of the scheme.

Investing in hybrid funds can be apt for those investors who are willing to bear some risk to earn higher returns on their mutual fund investments. The risk involved in investing in hybrid mutual funds majorly depends on their exposure to equity securities. Always invest in mutual funds considering your financial goals and risk horizon. Happy investing!

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