HOW HYBRID FUNDS CAN BE USED TO TWEAK ASSET ALLOCATION?

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Hybrid funds have pretty been in the talks for quite some time now. With their unique investment strategy, these mutual funds have managed to grab the attention of several investors, making them quite popular among retail investors. This article will explore how hybrid funds can help you tweak your asset allocation strategy. But before we get to that, let’s quickly recall what hybrid funds are.

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What are hybrid mutual funds?

As the name suggests, hybrid or balanced funds are a type of mutual funds that invest in more than one asset class – usually equities and debt securities. However, a hybrid fund can also have money market instruments or cash and cash equivalents as a part of its investment portfolio. These mutual funds aim to provide investors with the benefits of both equities and debts. Thus, these mutual funds aim to offer significant returns to investors through the equity component while at the same time preserving a part of the investment and thus offering safety and stability to investors through the debt component.

How can hybrid funds fit in your plan?

Investors often argue that in the world of investing, one either needs to hunt with the hounds or run with the hares. Here’s how hybrid funds can accurately fit in your investment plan:

  1. Several investors with a conservative investment approach wish to invest in equities gradually. For such investors, hybrid funds can be their solution. Such investors can opt for traditional hybrid funds that still predominantly invest in debt securities, with a small component dedicated to equities that help them generate alpha returns on their portfolio.
  2. If you are one of those investors who do not have the time and resources to track the allocation strategies of your investment portfolio, balanced funds can aptly fit your needs.
  3. Lastly, balanced funds help to tweak your asset allocation strategy systematically.

How can hybrid funds be used to tweak your asset allocation strategy?

There are two reasons why you might need to tweak your asset allocation strategy for your investment portfolio. Either you are heavily invested in equities and are looking for ways to cut down your equity exposure, or the opposite – despite having the capacity for a more significant chunk of portion allocated to equities, you might be under-exposed to equities. This is when hybrid funds can come to your rescue and fill the gap.

Hybrid funds offer investors to invest in both major asset classes – equities and debt, along with pre-determined and fixed asset allocation. While these funds can be ideal for several investors, keep in mind that you cannot customize the allocation strategy in hybrid funds. Ideally, how much you allocate to equities or debts, must depend on your investment horizon, financial requirements, and risk appetite. Happy investing!