Hybrid Mutual Funds -Types of Hybrid Mutual Funds and Asset Allocation
There are various categories of mutual funds. Hybrid mutual funds are also a category of mutual funds. This post discusses the hybrid mutual funds with their types. We will also give a brief description of the asset allocation scheme for each of these mutual funds.
A mutual fund that invests in both equities and debts is termed as hybrid mutual funds. They provide a diversified portfolio of investment to the investors comprising a variety of instruments typically including equities, and bonds. The diversification in these funds is provided in order to achieve a balanced return on investments and manage the risk.
Hybrid Mutual Funds are the mixture of Equity Mutual Funds and Debt Mutual Funds. In Equity Mutual Funds, the major asset class is the equity and in Debt Mutual Funds, the major asset class is debt while constructing the portfolio.
Types of Hybrid Mutual Funds
There are following types of hybrid mutual funds:-
- Aggressive / Balanced Mutual Funds
- Conservative Hybrid Funds
- Arbitrage Funds
- Capital Protection Funds
- Equity Savings Funds
- Dynamic Allocation / Balanced Advantage Funds
- Multi-Asset Allocation Funds
We will discuss each above-listed funds below.
Aggressive or Balanced Mutual Fund
An Aggressive Mutual Fund is a type of mutual fund that which includes both equity and debt instruments in the portfolio but it focuses on risk instruments, i.e. equities. They invest 65-80% of the total asset in equities.
Conservative Hybrid Fund
These funds invest 75-90% of the total asset in bond instruments and rest in equity stocks,
Arbitrage funds are those types of mutual funds which take benefits of the price difference between different exchanges. These funds make a profit by buying and selling the securities on a price difference between cash and derivatives market. It buys stock in the cash segment of the stock market at a lower price and sells this stock in the future segment on a higher price and vice-versa.
Capital Protection Fund
These mutual funds invest the majority of its asset in debt instruments particularly zero-coupon debts, and a small fraction of asset in equities. These funds are generally close-ended funds and have a fixed maturity date.
Equity Savings Fund
These mutual funds invest in debt instruments, equities and equity arbitrage. They maintain 65% focus on equities.
Dynamic Asset Allocation or Balanced Advantage Fund
These funds keep changing the focus between equity and debts depending on the market conditions. The allocation of asst varies between asset classes.
Multi-Asset Allocation Fund
These hybrid mutual funds invest in at least three asset classes. At least 10% of the total asset is allocated in each class. The variety of asset classes may be equity, debt, cash, or mutual funds.
Fixed Maturity Plan
These are close-ended funds that invest in both debt and equity. They have a fixed maturity period.
Difference Between Hybrid Fund and Balanced Fund
Balanced mutual funds are generally the hybrid funds because they invest their assets in equity, debts, money market instruments etc. Since they create a portfolio which is a mix of equity funds and debt funds, therefore, they are termed as hybrid munds. So basically, balanced mutual funds are hybrid funds because they are hybrid of equity and debt funds.
Also Read:- Who are the Key Regulators in the Financial Market of India? What is The Regulatory Setup of Financial Market? What is the Offshore Fund? What are the Advantages and Associated Risks with offshore funds? What is Gilt Fund? How does gilt funds work? What are the top Gilt Funds?
Disclaimer: This post is meant for educational purpose only. Please contact your financial/investment advisor for necessary suggestions.
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