Earn More, Save Securely with MoneyPlant: Invest in Hybrid Funds for Best Returns
If you are working a job or doing small gigs to earn money, you may naturally aspire to see your money grow significantly over time. However, when investing your earnings, especially when faced with the risk and volatility of the market, it’s crucial to strike a balance and consider options that can offer you substantial benefits while managing risks.
For conservative investors seeking stability and modest returns, opting for equity-oriented investments may seem daunting due to their higher risk potential. In such cases, investing in hybrid funds could be a suitable choice. These funds blend both equity and debt instruments, providing a balanced approach that can cater to the goals of conservative investors.
Investing in hybrid funds offers the potential for growth through equity exposure while also providing stability through the inclusion of debt instruments. This balanced strategy helps mitigate the risk associated with pure equity investments while offering the possibility of better returns compared to traditional debt instruments.
Hybrid funds, also known as balanced funds, are a type of mutual fund that invests in a mix of asset classes, typically equities and bonds. This combination provides investors with the benefits of both asset classes while reducing overall risk.
Here’s how hybrid funds work and why they may be suitable for certain investors:
- Enhancing Earnings: Hybrid funds aim to increase earnings by investing in a diversified portfolio that includes both stocks and bonds. The equity component offers the potential for higher returns over the long term, while the bond component provides stability and income generation.
- Risk Reduction: By diversifying across multiple asset classes, hybrid funds help mitigate risk. During periods of market volatility, the bond portion of the portfolio can act as a cushion, offsetting potential losses from the equity portion.
- Balanced Approach: Hybrid funds maintain a balanced approach to investing by allocating a certain percentage of assets to equities and a certain percentage to bonds. This ensures that the portfolio remains well-diversified and aligned with the investor’s risk tolerance and financial goals.
- Mutual Fund Structure: Hybrid funds operate as mutual funds, pooling money from multiple investors to invest in a diversified portfolio of securities. Professional fund managers make investment decisions on behalf of the investors, aiming to achieve the fund’s objectives.
- Asset Allocation: The asset allocation of hybrid funds typically varies based on the fund’s investment mandate and objectives. A common allocation is around 60% equities and 40% bonds, although this can vary depending on market conditions and the fund manager’s strategy.
Overall, hybrid funds offer investors the opportunity to participate in the potential upside of equity markets while providing downside protection through exposure to fixed-income securities. They are well-suited for investors seeking a balanced approach to investing that combines growth potential with capital preservation.
Hybrid mutual funds are approved to invest in a variety of securities, which helps in diversification and risk reduction.
If you want to have both debt and equity in your portfolio, hybrid funds can be ideal for you.
However, many hybrid funds vary in their levels of risk. In such situations, you should carefully evaluate and choose the funds that are suitable for you after conducting a thorough assessment.
Hybrid funds are better for new investors.
In reality, there are four types of mutual funds – equity, debt, hybrid, and solution-oriented funds. Beyond these, there are also funds like liquid funds, growth funds, open-ended funds, closed-ended funds, and ELSS, among others.
If you are looking to learn and benefit from potential without taking on too much risk in equity, you can balance it with hybrid funds.
For conservative investors, hybrid funds are a better option.
Hybrid funds are indeed a good choice for general investors. They are particularly beneficial for those who seek lower risk or are investing for the first time. Consider that you have invested in a hybrid fund, which invests in both equity and gold. When the market declines, your investment in gold remains intact. Similarly, when gold prices drop, you will benefit from higher returns in the stock market. Usually, the stock market and gold prices do not decline simultaneously.
According to data from the Association of Mutual Funds in India (AMFI), investments in hybrid schemes amounted to INR 9,907 crore in October. The total investments in hybrid funds have reached INR 62,174 crore from April to September.
Investing in hybrid funds can yield benefits without incurring losses.
Financial expert Jitendra Solanki explains, “Before choosing hybrid funds, understand your risk and investment objectives. Investing in hybrid funds for 5 to 7 years can yield returns of 20% to 30%.”
Investors who seek slightly higher returns than debt funds with less risk than equity may opt for hybrid funds. In these funds, the fund manager creates a balanced portfolio of equity and debt based on market and economic conditions.
Even aggressive investors can benefit from conservative investors who take fewer risks.
Those looking to earn more money should always consider investing in hybrid funds for a period of 5 to 7 years. Hybrid funds are considered very good funds for new investors in mutual funds.
In hybrid funds, tax is also applicable to investments.
When selling mutual fund units, Equity Oriented Mutual Funds attract a Securities Transaction Tax (STT) of 0.001% on the total value of the units sold. This tax is deducted from the proceeds of the mutual fund.
