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If we were to take a head count of the new world dynamics, the term ‘hybrid’ is likely to be present quite often – hybrid education, hybrid car, hybrid computers, and thanks to the work from home situation, even hybrid working style. The primary reason for the hybrid models to be fairly prevalent and popular among individuals is quite straightforward – it allows investors to cherry pick the best features from different options and create a new option that offers the best of all options. Hybrid funds do exactly the same. This article focuses on what makes hybrid funds so attractive investment option.
What are hybrid funds?
Hybrid funds are a type of mutual funds that invest in both equity and debt securities. Thus, these mutual funds consist of an equity component, debt component, and sometimes even a money market instruments component or other asset classes. The aim of hybrid funds is to generate wealth for investors in the long run while offering a regular income in the short run. As these funds invest across multiple asset classes, they are quite popular among investors who wish to create diversification while avoiding concentrated risks.
What makes hybrid mutual funds so attractive?
Here are a few reasons why balanced mutual funds are quite popular among investors:
- Flexible risk moderation
Depending on an investor’s risk tolerance, an individual can attain the perfect asset allocation mix across varying asset classes in a balanced fund. To make things simpler and easier for investors, hybrid funds are further bifurcated into four types – equity saver, conservative hybrid, dynamic equity, and aggressive investor. An investor can choose among these types of hybrid funds, basis their financial needs.
- One-stop solution
The construction of hybrid funds makes these investment options quite attractive. As hybrid mutual funds invest across various asset classes such as equities, gold, debt, money market instruments, etc. it permits investors to be exposed to a variety of asset classes through just one fund. As two asset classes have little to no correlation between them, hybrid funds help to create a substantial amount of wealth over time. - Rebalancing proposition
As balanced funds invest in several asset classes, it diminishes the possibility of a higher amount of loss arising from one type of investment. What’s more, investors who invest in balanced funds would not have to dedicate their time and resources to track the markets and change their asset allocation strategy accordingly as balanced funds’ fund manager automatically does that job for the investor. Thus, losses generating from one type of investment could be offset by another type of investment.
Given the dynamic and volatile nature of stocks, a hybrid investment style is quite attractive as they offer a cushion against abrupt instabilities in the market. Generally, a three to five-year investment duration is ideal for investing in balanced mutual funds. If you are a novice investor, balanced funds could be that changing point in your investment journey. Happy investing!
