When you are investing in Hybrid Mutual Funds in India, you must know that the corpus is allocated to equity and debt funds. When the asset allocation in the equity fund is more, it is referred to as equity-oriented funds. When the allocation of the investment is more for the debt funds then it is called debt-oriented funds. As it includes both the capital appreciation in the long run of the equity funds and the regular income of the debt funds, it balances your investment portfolio evenly.
A conservative investor will allocate less than 50% of the investment in equity while the one having higher risk-taking potential will always prefer investing in equity classes. That is because even though there may be some greater risks, but in the long run, you have the probability of making huge wealth from the high return rates. A hybrid fund having greater equity deposits is exposed to higher risks in comparison to debt-oriented funds. Potential risk bearers invest in an Equity Savings Fund in India.
Arbitrage fund is also a type of hybrid funds in India. It has the advantage of price fluctuation within the derivatives and the cash flow of the stock market. However, these are not always available in the market. To get a stable and constant return, the Arbitrage funds allocate their investment corpus in the fixed income instruments.
One may add a dynamic asset allocation fund in their portfolio. It is also a type of hybrid funds. Here the fund manager changes the investment ratio in equities and debts according to the market condition. It reduces volatility and attracts low risk-taking investors. You can also invest in a multi-asset fund. Thus your investment corpus gets divided among a combination of assets. Depending on the risk appetite, this can be aggressive or conservative.
Advantages of adding Hybrid Mutual Funds in your portfolio
The first and foremost advantage is the balancing of risk and return. The equity corpus offers better return and the debt portion allows you to earn steadily at a lower risk.
Here, you get a benefit of diversification. When the price of your share falls, the return is made stable by the debt components. But when the share price rises, the stocks are needed to be sold by the fund manager to maintain the equity-debt ratio.
Another advantage is you can invest every month with a small amount through SIP. They are having lower volatility as the debt components manage a volatile market and bring a certain amount of stability. With the equity component, you can get higher returns. No active portfolio management is required in case of Hybrid Mutual Funds in India and therefore the expense ratio is lower in comparison to other investment portfolios.
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