Hybrid Mutual Funds

Hybrid funds meaning refers to a combination of equity and debt investments designed to achieve the investment objective of the scheme. These funds invest in a mix of asset classes, primarily equity and debt, though some also include other assets like gold or international equities. The blend of equity funds and debt in hybrid funds caters to different types of investors, depending on their financial goals and risk profiles.
 

Each fund offers a unique balance of equity and debt investments to meet the needs of diverse investors, making hybrid funds versatile investment options for varying preferences. The combination of different asset classes in a single fund helps investors achieve better portfolio diversification and alignment with their long-term financial objectives.

1. Invest in multiple asset classes

A key characteristic of a hybrid fund is its investment across equities and debt, as well as other asset groups like gold or international equities, providing broad diversification.

2. Balanced portfolio

Hybrid funds offer a balanced portfolio by combining the growth potential of equities with the stability of debt securities, enabling investors to achieve larger returns with lower risks.

3. Short-Term and long-term financial objectives

These funds cater to both short-term and long-term financial objectives, offering flexibility depending on an investor’s goals.

4. Equity components for long-term wealth generation

The equity components in a hybrid fund focus on long-term wealth generation, making them ideal for growth-oriented investors.

5. Debt securities for stability

By investing in debt securities, hybrid funds ensure portfolio stability, especially in volatile markets.

6. Types of hybrid funds

There are various types of hybrid funds, each with different equity-debt combinations to suit diverse financial demands and types of investors, including both conservative and aggressive investors.

7. Risk tolerance and investor types

Hybrid funds can be tailored to different risk tolerance levels, making them suitable for both small-scale and large-scale investors seeking balanced hybrid fund investment options.

Hybrid funds primarily invest in two distinct asset classes: equity and debt. While equity holds the potential for lucrative returns and wealth creation, it also introduces higher volatility in the short term. Conversely, debt, composed of interest-bearing instruments, provides a steady income stream with lower risk compared to equity. The low correlation between these asset classes allows hybrid funds to reduce overall portfolio risk.

The fundamental purpose of a hybrid mutual fund is to combine the strengths of both equity and debt within a single investment vehicle. The equity component aims to yield returns during favorable market conditions, contributing to long-term capital appreciation. Simultaneously, the debt component acts as a protective layer during market downturns, offering stability and a consistent income stream. The asset allocation is dynamically managed by the fund manager based on the fund's objective and prevailing market conditions, ensuring an optimal balance between risk and return at all times.

1. First-Time Mutual Fund Investors

Hybrid funds are ideal for new investors transitioning from traditional fixed income instruments like fixed deposits. They provide exposure to the equity asset class with reduced risk of volatility.

2. Seasoned Investors

Experienced investors looking for a balanced portfolio can benefit from Hybrid Mutual Funds, which offer exposure to the equity market while managing risk based on their risk profile.

3. Investors with a 3-5 Year Investment Horizon

Those with a medium-term goal, such as purchasing a car, should consider hybrid funds. These investors need growth but with reduced volatility, making hybrid funds a suitable option.

4. Retired Individuals

Conservative hybrid funds with a unique asset allocation are suitable for retirees seeking regular income. The debt component provides stability, helping mitigate inflation's impact.

5. Investors Looking for Asset Allocation

Investors who don’t have the expertise to track the markets can use hybrid funds for easy access to diversified investments and professional management.

6. Short-Term Investors

For investors with a shorter time frame, arbitrage funds—a type of hybrid fund—can offer low-risk returns over a short duration, while balancing equity and debt efficiently.

To invest in a Hybrid Mutual Fund, start by selecting a fund based on your financial goals and risk tolerance. Research various AMCs (Asset Management Companies) offering these funds and compare their performance. You can invest through mutual fund platforms or directly via the AMC’s website, opting for a lump sum or Systematic Investment Plan (SIP).

You can invest in mutual funds directly through the AMC's website or via intermediaries like Bajaj Finserv. To invest via Bajaj Finserv, sign up and complete the KYC process. Once your KYC is successfully verified, you can start investing in hybrid funds with ease.

Investing in a Hybrid Fund offers a balanced approach for investors. While riskier than debt funds, hybrid funds are safer than equity funds, making them ideal for those seeking moderate risk. These funds invest in both equity markets and debt instruments, offering the potential for growth through equities while the debt component offers stability.

This combination helps mitigate the impact of market volatility. Hybrid funds are well-suited for investors with medium-risk tolerance, providing a diversified portfolio that balances growth and security, making them an attractive option for both short-term and long-term financial goals.

In hybrid funds, the tax on gains is as follows:

Equity component of the Hybrid Fund:

• Long-Term Capital Gains above Rs. 1 lakh are taxed at 10% without indexation.
• Short-Term Capital Gains are taxed at 15%.
   

Debt component of the Hybrid Fund:

• Gains are added to your income and taxed according to your applicable income tax slab.
• Long-term capital gains are taxed at 20% after indexation or 10% without indexation benefits.

Selecting the right hybrid fund hinges on personal risk tolerance, financial goals, and investment horizon. Understanding your risk profile is key. Factors like financial objectives and time frame also matter. Evaluate these aspects to choose a hybrid fund that aligns with your needs and preferences.
 

1. Investment strategy/objective: Every fund has a declared investment strategy and objective, that explains their approach to investment. Investors should understand the approach taken by these funds so they can decide if it matches with their personal preference.

2. Match goals: Your investment goals can vary from tax savings to long term capital appreciation. Knowing this can help you find funds that can support these goals.

3. Risk vs reward: Hybrid funds take higher risks for proportionately higher rewards. By analysing the risks taken by the mutual fund, investors can discover if they match with their own personal risk profile and preferences.

4. Hybridity preference: Investors should know when they will need their investment corpus. Hybrid funds are designed for medium to long term returns, with a minimum period of one year for any results to materialize. If your hybridity requirements are shorter than that, consider investing in debt funds instead.
 

Investing in Hybrid Funds on the Bajaj Finserv platform is a straightforward process, and utilising tools like the SIP calculator and lumpsum calculator can further enhance your investment strategy.

1. Managing market volatility with balanced returns: Hybrid funds are becoming popular because they balance growth and stability, making them suitable for volatile market conditions. These funds invest in both equity and debt instruments, providing higher returns than fixed deposits while keeping the risk lower than pure equity investments. This makes them a good option for investors seeking steady returns in uncertain markets.
2. Diversification and automatic rebalancing: These funds offer diversification by investing in multiple asset classes like equity, debt, and sometimes even gold. This reduces the overall risk in the portfolio. Additionally, fund managers actively adjust the mix of assets depending on market conditions, ensuring your investments stay optimised without requiring you to do the rebalancing yourself.
3. Tax benefits: With the changing tax rules in India, hybrid funds have become a tax-efficient investment choice. They offer better post-tax returns compared to some other investment options, making them attractive for investors.
4. Stable Returns with lower risk: Hybrid funds are designed to balance the high growth potential of equity investments with the stability of debt. They are less affected by market uncertainties, making them a better choice for investors who want growth without taking excessive risks.

When selecting the best hybrid funds, it is essential to keep the following factors in mind:

1. Returns
   Hybrid funds do not guarantee returns, and their performance is influenced by the underlying assets. The equity market's performance can significantly impact the fund's overall returns.
2. Investment horizon
   These funds are typically suited for investors with a medium-term outlook (3 to 5 years). The longer you stay invested, the better your chances of achieving stable and higher returns.
3. Risks
   Investing in hybrid funds carries inherent risks. The risk level depends on the proportion of equity in the fund. Higher equity exposure usually means higher risk, and the reverse is true for funds with more debt exposure.
4. Investment strategy
   When choosing hybrid funds, consider the fund's asset allocation, the weightage in each category, and the investment strategy set by the fund manager. These factors can significantly affect your returns.
5. Other costs
   Hybrid funds come with fees, such as the expense ratio. A lower expense ratio will minimise the impact on your overall investment returns.

A step-by-step guide to invest in mutual funds

Step 1: Visit the Bajaj Finserv website or download the app from Google Play Store or App Store

Step 2: Navigate to 'Investments' and click on 'All Investments' on the home page

Step 3: Click on 'Mutual Funds' icon

Step 4: Click on 'Explore Funds'. You will be redirected to the mutual funds listing page

Step 5: Filter by scheme type, risk appetite, returns, etc. or choose from the top performing funds list

Step 6: All the mutual funds of the particular category will be listed, along with the minimum investment amount, annualised return, and rating

Step 7: Click on 'Invest Now'

Step 8: Enter your mobile number and sign in using the OTP

Step 9: Verify your details using your PAN, date of birth. If your KYC is not complete, then you will have to upload your address proof and record a video

Step 10: Enter your bank account details

Step 11: Upload your signature and provide some additional details to continue

Step 12: Choose and select the mutual fund that you want to invest in

Step 13: Choose whether you want to invest as SIP or lumpsum and enter the investment amount. Click on ‘Invest Now’

Step 14: Select your payment mode i.e., net banking, UPI, NEFT/ RTGS

Step 15: Once your payment is done, the investment will be complete

Your investment will start reflecting in your portfolio within 2-3 working days.