A Complete Guide to Hybrid Funds | Incl. Multi Asset, Arbitrage & Balanced Advantage Funds | ETMONEY

Equity Savings Fund, Balanced Advantage Fund, Aggressive Hybrid Fund, Conservative Hybrid Fund, and many more. Hybrid funds come in all shapes and sizes. In this video, Dr. Renu Pothen, VP - Asset Allocation, Client Associates discusses the key hybrid fund categories and talks about their risk-return equation and investment horizons so that you can invest in them wisely.

Topics covered in this video:
00:00 - Introduction
00:49 - What are Hybrid Funds?
03:25 - Conservative Hybrid Funds
04:36 - Balanced Hybrid Funds
07:04 - Dynamic Asset Allocation Funds
09:34 - Multi-Asset Allocation Funds
10:56 - Arbitrage Funds
12:55 - Equity Savings Fund
13:51 - ETMONEY Opinion

Hybrid mutual funds are types of mutual funds that invest in more than one asset class. Most often, they are a combination of Equity and Debt assets, and sometimes they also include Gold or even Real estate. The key philosophies behind hybrid funds are - asset allocation, correlation, and diversification.

👉 Conservative Hybrid Funds

The conservative hybrid category of funds predominantly invests in debt instruments. The equity allocation for these funds can be anywhere between 10% to 25%, while the debt allocation ranges from 75% to 90%. These funds are suitable for risk-averse investors whose priority is the safety of capital but are willing to take a small allocation into equities which will provide upside potential to the overall performance of the fund.

👉 Balanced Hybrid Funds

The balanced hybrid category invests about 40 to 60% of its assets in equities and the rest in debt. This means, at any point, there can be 40% equities and 60% debt. Or there can be 60% equities and 40% debt. Or any combination in between. Balanced hybrid funds are suitable for investors with a moderate risk profile i.e. people who don’t want too big an exposure in a particular asset but don’t want too little exposure as well.

👉 Aggressive Hybrid Funds

Aggressive Hybrid Funds are one of the most popular categories in the hybrid space. The mandate of the aggressive hybrid category allows it to predominantly invest in equity instruments with an equity allocation of anywhere between 65% to 80% of the total assets. This category is ideal for investors with an aggressive risk profile and who have a time horizon of more than 5 years.

👉 Dynamic Asset Allocation Fund / Balanced Advantage Funds

The dynamic asset allocation or balanced advantage category has been gaining popularity among investors on account of its flexibility to move across asset classes with no limits fixed by the regulator. The allocation between equity and debt is “dynamically managed”. It’s “managed” because you get the services of a Fund Management Team that adds a flexibility layer and moves money across the asset classes. And it is “dynamic” because the allocation itself depends on the valuation models used by them. These funds normally allocate more to equities when valuations are cheap and less to equities when the valuations are expensive.

👉 Multi-Asset Allocation Funds

Multi-asset allocation funds can invest into at least three asset classes with a minimum allocation of 10% into each asset class. In this highly diversified fund category, the Fund Manager will move across the asset classes depending on the market outlook and the valuations at which the asset is available. The multi-asset allocation fund is ideal for investors who understand the advantages and disadvantages of the different asset classes. And are keen to grow their wealth with stability and diversification.

👉 Arbitrage Fund

The arbitrage funds are designed to generate returns from mispricing opportunities. Arbitrage Funds earn returns for investors from the difference in pricing of stocks between the cash market and the futures market. The good part is that these funds are subject to equity taxation and have the potential to generate higher returns than liquid plus funds.

👉 Equity Savings Fund

The equity savings funds invest in equities, equity arbitrage, and debt. This is done to keep the minimum investment in equities at least 65% as it will give favorable equity taxation. The equity savings fund also has a minimum allocation of 10% in debt which allows for some downside protection along with the arbitrage component. This fund is most suitable for moderate investors who want to have some downside protection but are generally fine with taking a decent exposure into equities. We would recommend this category of funds to investors, who want debt plus returns and have a 3-year time horizon.

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👉 Read article: https://www.etmoney.com/learn/mutual-funds/hybrid-mutual-funds/

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