All you need to know about Hybrid Funds

As the name suggests, Hybrid Funds spread their investments across different asset classes. Depending on the category, they invest in a combination of assets like equity, debt, real estate, gold and so on. Hybrid funds aim to provide diversification at a relatively lower risk as compared to pure equity funds.

Types of Hybrid Mutual Funds

Now that you know what are hybrid funds, here’s taking a closer look at their various types:

Multi-Asset Funds- Multi Asset Funds invest a minimum of 10% each in three asset classes.Aggressive Hybrid Funds- These funds invest in the range of 65% to 80% in equity (the maximum threshold is 80%) and 20-35% (maximum is 35%) in debt.Dynamic Asset Allocation Funds- Dynamic Asset Allocation Funds or Balanced Advantage Funds dynamically manage their allocation between debt and equity. They typically maintain an equity allocation of 65% to offer equity taxation.Conservative Hybrid Funds- These funds invest in the range of 10 to 25% of assets in equity and the remaining 75% to 90% in debt.Equity Savings Funds- These funds invest a minimum of 65% of assets in Debt and at least 10% in Debt. These funds attract equity taxation.Arbitrage Funds- Arbitrage Funds buy stocks in the cash market and simultaneously sell them in the futures market at a higher price to generate returns from the difference in the price of the security in the two markets. They maintain equity allocation of 65%, and thus attract equity taxation.

Here are a few smart things to know about Hybrid Funds

Hybrid mutual funds do not come with guaranteed returns.Hybrid Funds are not completely immune to volatility. Depending on the equity exposure, these funds can witness higher drawdowns during market volatility.The taxation of Hybrid Funds depends on the underlying exposure to debt or equity investment.Hybrid Funds aim to reduce risk by diversifying into different asset classes.Choose a fund which suits your risk appetite and investment goals.Your investment horizon should depend on the equity exposure of the fund. For instance, investing in Aggressive Hybrid Funds requires an investment horizon of at least three years.Arbitrage Funds tend to perform well during volatile market conditions.

Disclaimer: Mutual fund scheme investments are subject to market risks; thoroughly read all offer materials.