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Hybrid Funds Explained: A Mix of Different Investment Vehicles

Investment in multiple asset classes is the core of Hybrid Funds, formerly known as Balanced Funds. Discover the ins and outs of Hybrid Funds, including their types, advantages, and reasons why you should consider investing in them.

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Investment Vehicles Combining Traditional and Alternative Strategies: An Overview of Hybrid Mutual...
Investment Vehicles Combining Traditional and Alternative Strategies: An Overview of Hybrid Mutual Funds

Hybrid Funds Explained: A Mix of Different Investment Vehicles

In the dynamic world of investments, diversification is key. This is where hybrid funds come into play, offering a balanced approach that combines the best of both equity and debt investments.

Hybrid funds diversify a portfolio not only across asset classes but also across sub-classes within the asset class. Assets within the same class often share similar risk sources and return factors, leading to a high correlation in returns. Conversely, assets across different classes typically display low correlation in returns.

When selecting a hybrid mutual fund, it's important to consider factors such as risk tolerance, investment horizon, and the fund's historical performance.

Some of the top-performing hybrid mutual funds in India as of 2025 include:

  1. ICICI Prudential Equity & Debt Fund: Known for its hybrid strategy, this fund offers a blend of equity and debt investments. It has a significant Asset Under Management (AUM) and a high three-year return rate.
  2. JM Aggressive Hybrid Fund: With a return of 24.00%, this fund is notable for its aggressive hybrid strategy, making it suitable for investors willing to take higher risks.
  3. ICICI Prudential Retirement Fund - Hybrid Aggressive Plan: This fund offers an aggressive approach with a return of 23.64%, making it another strong option for those seeking high returns in the hybrid category.
  4. Edelweiss Aggressive Hybrid Fund: Known for its low expense ratio and high three-year returns, this fund is a popular choice for aggressive hybrid investments.
  5. SBI Equity Hybrid Fund: Highlighted as a top performer in current market conditions, this fund is recommended for its balanced approach and stability.

Hybrid funds embody three fundamental philosophies: asset allocation, correlation, and diversification. Asset allocation involves distributing wealth among various asset classes, correlation refers to the co-movement of returns among assets, and diversification entails having multiple assets in a portfolio.

Hybrid funds serve as a good entry point for new investors in the equity market and can be used for saving for any specific medium-term goal. They offer varying levels of risk tolerance, ranging from conservative to aggressive, catering to different investor profiles.

Aggressive hybrid funds primarily invest in stocks with some allocation to FD-like instruments, spreading out investments to be less risky than pure equity funds with almost similar returns in the long run. Conservative hybrid funds, on the other hand, primarily invest in FD-like instruments with some allocation to stocks, aiming to provide more returns than bank fixed deposits without taking too much risk.

It's essential to note that while hybrid funds aim to generate capital appreciation through equity allocation and to reduce volatility through the debt component of the portfolio, they are not immune to market risks. An investor should be prepared for volatility, as almost all the funds will have equity exposure.

Hybrid mutual funds provide active risk management through portfolio diversification and asset allocation. They also allow investors to access multiple asset classes with a single product.

In conclusion, hybrid mutual funds offer a balanced approach to investment, providing a diversified strategy that can help navigate the ups and downs of the market. When choosing a hybrid fund, it's crucial to consider one's risk tolerance, investment horizon, and the fund's historical performance.

  1. Hybrid funds, such as the ICICI Prudential Equity & Debt Fund, offer a blend of equity and debt investments, providing diversification for the portfolio and appealing to investors seeking high returns.
  2. In choosing a hybrid fund, it's important to consider the fund's historical performance, as well as the investor's risk tolerance and investment horizon.
  3. Aggressive hybrid funds, like the Edelweiss Aggressive Hybrid Fund, primarily invest in stocks with some allocation to FD-like instruments, offering higher returns in exchange for increased volatility.
  4. Conservative hybrid funds, like the SBI Equity Hybrid Fund, primarily invest in FD-like instruments with some allocation to stocks, aiming to provide more returns than bank fixed deposits while minimizing risk.

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