Gone are the days when investors depended on traditional investment schemes like bank fixed deposits to achieve their life’s long-term financial goals. The problem with conservative investment schemes is that they over very little capital appreciation. Also, just letting your money let sit idle isn’t a good idea. Savings aren’t going to help you attain financial freedom. Inflation tends to eat up our savings and we will be left penniless by the time we grow old. Hence one needs to start investing at an early stage in life in order to make sure that do not have to depend on their children or their estranged relatives for financial support.
Mutual funds have been one of the most sought after investment avenues for those seeking higher capital appreciation as compared to traditional financial products. Not only do they offer low fixed interest rates, one cannot fulfil their life’s long-term financial goals through sole investments in low interest rate offering conservative schemes. Of all the mutual fund schemes, hybrid funds have caught the attention of several investors. The primary reason why most people are preferring hybrid funds is because of their unique investment approach for generating income. The duty of a hybrid fund manager is to invest in both debt and equity in quantum with the investment objective of the scheme. The debt provides cushion against volatile markets whereas the equity aspect of the fund gives investments an opportunity to generate capital gains.
Types of hybrid funds
Conservative Hybrid Fund: This fund must invest 10 percent to 25 percent of total assets in equity and equity related instruments between whereas, 75 percent and 90 percent of total assets in debt instruments.
Balanced Hybrid Fund: This fund must invest between 40 percent and 60 percent of the total assets in equity and equity related instruments percent of total assets, whereas 40 percent to 60 percent of total assets in debt instruments.
Aggressive Hybrid Fund: This fund must invest 65 percent to 80 percent of total assets in Equity & Equity related instruments between; whereas 20 percent to 35 percent of the total assets in Debt instruments.
Dynamic Asset Allocation or Balanced Advantage Fund: This fund must invest in equity / debt that is managed dynamically
Arbitrage Fund: The arbitrage funds must follow an arbitrage strategy where a minimum of 65 percent to the total assets must be made in investment in equity and equity related instruments.
Equity Savings: This fund must invest a minimum 65 percent of total assets in equity and equity related instruments and a minimum of 10 percent of the total assets in debt.
Multi-Asset Allocation Fund: This fund invests in a minimum of three asset classes with a minimum allocation of 10 percent in each asset class
Why hybrid funds are a better alternate option for traditional investments?
All the above stated hybrid funds have a chance of offering far better capital appreciation than traditional investment schemes. Traditional investment avenues like bank FDs may carry low risk but they also offer very little capital appreciation. Also, traditional investments do not have liquidity. On the other hand, investors can buy or sell your hybrid fund units on any business day depending on their income needs. Traditional investment schemes come with a lock in period that can span anywhere between 5 to 15 years, sometimes even more. Not only does your money remain locked and out of your reach you may not be able to face life’s unforeseen financial emergencies by only investing in traditional schemes. If you want to invest in hybrid funds, please consult a financial advisor before doing so.