HYBRID FUND

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This is for those who want the best of adventures and safety. A hybrid fund achieves maximum diversification and assured returns by investing in both debt instruments and equities.

There are different types of hybrid funds namely

Equity-oriented hybrid funds
Debt-oriented balanced funds
Balanced funds
Monthly Income plans
Arbitrage funds

These funds are as per their asset allocations. While some are higher in equity allocation, others are more debt-oriented. A low expense ratio than any other competing funds translates into higher returns for investors. One can easily meet intermediate financial goals, of buying a car or funding higher education with hybrid funds. Though hybrid funds are not risk-free but are lesser risky than pure equity funds, with regular portfolio rebalancing and caution.

Types and role of a Hybrid Fund.

Arbitrage Funds: A smart way adopted by a manager for purchasing the stocks at a lower price in one market and selling the same stocks at a higher price in another market. This maximizes return. Though this may not be the case always, it is relatively safer like other debt funds.

Monthly Income Plan: A predominantly investment in debt instruments. A monthly

An income Plan also termed MIP in short, usually has a 15-20% exposure to equities.

A regular dividend income is at hand and this regulates higher returns than regular debt funds.

The regular dividend can be monthly, quarterly, half-yearly, or annually, based on the investor’s choice.

Taxation: Like any equity fund, the equity component of hybrid funds are taxed too.

Short-term capital gains on the equity component are taxed at 15% while Long-term capital gains are taxed at 20% after indexation and 10% without the benefit of indexation.

Return: Like equity funds, hybrid funds also do not guarantee any fixed return.

NAV (Net Asset Value) of these funds is affected by the performance of underlying securities.

Fluctuation is bound to happen depending on the market movements, leading to no dividend during market downturns.

Expense Ratio: charges levied for managing an investor’s portfolio. Investors must be careful to select a low expense ratio than other competing funds, which helps in gaining higher returns.

F.A.Q

WHY HYBRID FUNDS?

In today’s time, people want more gains and want lesser risks. Thus Hybrid funds provide is near the requirement of today’s needs.
WHICH TYPE OF HYBRID FUND IS BEST?

It all depends on the investor’s choice. Depending on what the investor is looking for, they can choose from five different types of hybrid funds.
IS A HYBRID FUND SAFER THAN EQUITY?

Yes, that is very much considered now. Hybrid funds are a safer bet than pure equity funds. It is best for conservative investors. It is also best for budding investors, who are eager to take exposure to the equity market. This can be their best first step.
WHAT IS THE FUNCTIONING MANNER OF HYBRID FUNDS?

Since hybrid funds aim to achieve appreciation in wealth in the long-run while generating income in the short run. The fund manager allocates our money in various proportions in equity and debt based on the investment objective of the fund. Buying or selling securities is to take advantage of the market.