Factors to Consider Before Investing in Hybrid Mutual Funds

It is evident that most hard working individuals aren’t happy with their monthly income. This is the reason why most of them turn to investment avenues to help them achieve their life’s short term or long term financial goals. If you really want to see yourself become financially successful you may have to start saving and investing at a younger stage in life. There are several factors that determine how much or in which asset classes one should invest in order to earn capital appreciation in future.
There are multiple investment avenues for investors to choose from. Often, investors do the mistake by one judging an investment scheme based on its past performance. Do understand that the past performance of a scheme may or may not determine its current or future performance. If you are someone who carries a moderately high risk appetite and are keen on remaining invested for the long run, you can consider investing in mutual funds.

What are mutual funds?

Mutual funds are a pool of professionally managed funds that invest in a diversified portfolio of securities for income generation. Market regulator SEBI (Securities and Exchange Board of India) define mutual funds as –
“a mechanism for pooling the resources by issuing units to the investors and investing funds in securities in accordance with objectives as disclosed in offer document. Investments in securities are spread across a wide cross-section of industries and sectors and thus the risk is reduced. Diversification reduces the risk because all stocks may not move in the same direction in the same proportion at the same time.”

What are hybrid schemes?

While equity funds allocate majority of its assets to company stocks and debt funds invest in fixed income securities for income generation, hybrid schemes follow a unique investment strategy where they invest in both equity and debt for generating capital appreciation. Whether a hybrid fund will invest majority of its assets in equity or debt will totally depend on the nature of the scheme, its risk profile and investment objective.

Factors to consider before investing in hybrid funds

Track the performance of the hybrid scheme: A hybrid fund with a proven track record has the potential to offer investors with decent returns. Yes, it is indeed true that that past or historical data of any fund doesn’t replicate its present or future. However, a fund with a good track record signifies it being handled by professional management. And you would definitely want to invest your hard earned money in a fund that not just has a proven track record, but a fund that is run by reputed management.
Invest according to your investment objective: Although hybrid schemes make a decent investment option to target an investor’s financial goals, there are multiple hybrid schemes that may sound similar in nature but, and sometimes choosing a scheme that aligns with your investment objective might get a tad confusing. Hence investors should always invest in a hybrid scheme keeping their investment objective in mind.

Risk appetite: Although hybrid schemes follow a unique investment strategy, they do not guarantee capital gains. Mutual funds, be it hybrid or any other fund do not offer fixed returns, and hence, investors should identify their risk appetite before investing. Understanding one’s risk appetite might allow an investor in knowing their limits and might also help them choose a hybrid scheme that shares a similar investment objective as theirs.

Here are some of the things expected from investors before investing in a hybrid scheme. However, it is better to consult a financial advisor before investing.