Hybrid Mutual Funds: Running through the basic aspects
Hybrid Mutual Fund is a category of Mutual Fund that is represented by diversification among two or more asset classes. It can be a mixture of debt, equity, gold, real estate, etc. in different proportions based on the investment objective.
A Mutual Fund is a type of financial vehicle made up of a pool of money collected from large number of investors to invest in securities such as stocks, bonds, money market instruments, and other assets. Each Mutual Fund scheme is managed by professional Fund Manager(s).
Classification of Hybrid Mutual Funds
The theories behind Hybrid Mutual Funds are asset allocation and diversification. Hybrid funds can be further classified based on their asset allocation.
Risks embraced
There is a misconception that Hybrid Mutual Funds have minimal risks. This is not true at all. As Hybrid Mutual Funds commonly invest in a mix of stocks and bonds, there are two kinds of risk involved in a Hybrid scheme – swings in stock prices and fluctuations in interest rates. If stock prices fall, NAVs will drop according to the proportion of equity in the scheme. When interest rates change, NAVs will change as per proportion of debt in the scheme.
Suitability of Hybrid Mutual Funds
Hybrid Mutual Funds are usually viewed as safer choice than Equity Mutual Funds. Hybrid Mutual Funds have historically provided higher returns than Debt Mutual Funds. This is a reason why somewhat conservative investors favor Hybrid schemes. Even emerging investors who are eager to take exposure in equity markets generally think of Hybrid schemes as their initial steps.
Portfolio of Hybrid schemes are constructed in a generalized manner. This may or may not be fully suitable for your specific requirements. Considering subjective financial goals, time horizons of investments, risk profile, personal aspects as well as macroeconomic scenarios, one must not randomly invest his/her hard earned money in Mutual Funds without proper knowledge of the products. Product suitability framework must be obeyed to avoid needless financial distress.
Mutual Funds investments are subject to market risks, read all scheme related documents carefully. The NAVs of the schemes may go up or down depending upon the factors and forces affecting the securities market including the fluctuations in the interest rates. The past performance does not necessarily indicate future performance of the schemes. Mutual Funds do not guarantee any return(s). Investors are requested to review the prospectus carefully and obtain expert professional advice with regard to specific legal, tax and financial implications of the investment/participation in the scheme.
SEBI Circular
Circular, dated October 6, 2017, bearing no. SEBI/HO/IMD/DF3/CIR/P/2017/114, issued by Securities and Exchange Board of India, regarding “Categorization and Rationalization of Mutual Fund Schemes” should be exclusively considered for details.
Disclaimer
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