Everything You Need to Know about Hybrid Mutual Fund’s Schemes
Hybrid funds are also recognized as balanced schemes invest into some proportion of equity and debt. The hybrid schemes invest at least 65 per cent of the corpus in equity.
Hybrid schemes are less volatile thus they are treated as safe tool. In times of volatility, the debt investments provide stability. Hybrid funds are suitable for noob investors as well as for the conservative equity investors in the stock markets.
If you are among those who do not want the hassle of investing in a basket of products that needs to be rebalanced at regular intervals, you can opt for hybrid funds. In last few years, hybrid funds have given good returns. As per some studies, in the last three years balanced funds have returned 18 per cent compared to 23 per cent returns that is given by the Bombay Stock Exchange Sensex.
Various funds have given more than 25 per cent annual returns in the period. Some of them are like HDFC Prudence, Birla Sun Life 95 and Tata Balanced. Hybrid funds have returned more than 10 per cent in the benchmark index in the last five years.
These types of funds do well when stock markets are going through a difficult phase as they have a cushion of debt. Therefore, they are better equipped to withstand shocks in falling markets. On the other hand, when stock markets are rising, it is not necessary that it may perform as well like funds with 100 per cent equity component.
With these funds rebalancing based on market conditions also works. Suppose you take a balanced fund with 70 per cent exposure to equity and 30 per cent to debt. When the stock market falls then the equity exposure of fund will drop to the extent of the fall, and will leave the fund manager with no other option rather than buying more shares to maintain the 70 per cent equity level. Here debt provides safety.
Remember, different types of hybrid funds follow different asset allocation strategies and returns depending upon how their individual investments perform. Therefore, it is important to ensure that you compare the performance of the funds against the right index.