Investing in Hybrid Funds: Pros and Effective Strategies

 The joint investment market is divided into debt–oriented mutual funds, equity-oriented mutual funds and hybrid mutual funds. So, if you are new to mutual fund investments and wondering about hybrid funds? Or about its advantages, then keep reading.

As the name suggests, hybrid funds are mutual funds that compile both equity and debt components for mutual fund investments. Different types of hybrid funds are available, and they offer various benefits. First, and below, we will discuss its pros and effective strategies.

 

Pros of hybrid mutual fund

Investing in every mutual fund offers different sorts of benefits. Also, investing in hybrid mutual funds comes with multiple pros and advantages. Here is a brief list of advantages you can get from investing in a mutual fund hybrid.

 

●     Great risk management-

The most vital benefit of a hybrid fund is that it offers more effective risk management than any other mutual fund. This is because hybrid mutual funds compile different non-collateral funds and provide better risk management. So, when you invest in hybrid funds, you can get greater and more active risk management.

 

●     Compatible with various risk appetites-

Hybrid funds also come with various risk appetite compatibility. Therefore, different hybrid funds are compatible with different risk appetites. Equity hybrid funds are ideal for aggressive investors with large risk appetites. Similarly, debt hybrid funds are suitable for investors who want to take minimal risks and gain stable income.

 

●     Portfolio diversification-

Another essential benefit of investing in a hybrid fund is portfolio diversification. Hybrid funds can be a great option if you want to diversify your investment portfolio. Hybrid funds diversify your investment across your asset and classes like small-cap, mid, large-cap, value, growth stock etc.

 

●     Best asset allocation-

The hybrid mutual fund offers the best asset allocation for investors. And when an investor chooses to invest in a hybrid fund, they can allocate their assets across several asset classes. So, when you invest in the hybrid fund, you can access different asset allocations with one single investment.

 

●     Purchase at low and sell at high

With hybrid funds' portfolio rebalancing, you can buy assets or stock when their value is low and sell the same when their market value is high.

 

●     Automatic portfolio rebalancing

Automatic portfolio rebalancing is also a significant benefit of hybrid fund investments. In most mutual fund investments, you need to worry about your asset allocation and their deviating targeted asset. But when you invest in hybrid funds, you get automatic portfolio rebalancing. In this mutual fund, a fund manager constantly observes your investment portfolio and changes asset allocation if needed.

 

Effective strategies you can make for investing in a hybrid fund

Multiple techniques can be chosen to make your hybrid fund investments effective and maximise your investment return. Here we will list some practical strategies to improve your investments.

●     Understand your risk tolerance and choose accordingly

Multiple hybrid investment plans come with different risk tolerance abilities. Like equity-oriented hybrid funds offer higher risk, but debt-oriented hybrid funds are less risky. Also, your asset allocation within a hybrid fund determines the risk. For instance, the more your asset is allotted in equity; your hybrid fund becomes riskier.

 

●     Set long time horizon

Another excellent way to strategize your hybrid investment is to set your investment time horizon wisely. These kinds of funds are ideal for medium-term investments. And if you put your time horizon 3 to 5 years, you can make the best of your investments.

 

●     Expense ratio

Every mutual fund comes with several charges, so do the hybrid mutual funds. The cost of hybrid funds is called the expense ratio. And whether you choose a hybrid equity fund or a debt fund, compare the expense ratio before investing.

Conclusion

 

 A hybrid mutual fund can be a better option for those who want to benefit from debt and equity components with a single investment. But you must choose the best hybrid mutual fund in India for your investment.