Should hybrid funds be preferred picks for young professionals? Should younger investors choose these hybrid mutual funds in their portfolio? However, before buying a hybrid mutual fund online, young investors should scrutinize all aspects of these plans carefully while obtaining greater knowledge about the same in turn. These hybrid funds deploy investments in both equity and debt instruments for enabling higher diversification and also bypassing risks of concentration in turn. An ideal mixture of these two factors helps in garnering stellar returns as compared to conventional debt funds while not having higher risks like equity funds too.
Choices of hybrid funds online will majorly depend upon preferences or tolerance for risks along with overall financial or investment objectives/goals. Hybrid mutual funds aim at accomplishing appreciation of wealth in the long haul while also generating income in the short term through a portfolio which is more balanced. Fund managers allocate investments in varying ratios across debt and equity on the basis of investment goals of funds. They may also sell/purchase securities for taking more advantage of positive movements in the market.
These hybrid funds are usually perceived as safer choices as compared to equity funds. They ensure higher returns as compared to debt funds and are more popular amongst conservative investors. Youngsters and budding investors who wish to get more exposure to equity markets may invest in these funds. The presence of the equity aspect in the investment portfolio will ensure higher earning potential by way of returns while the debt aspect in the portfolio will offer a cushion against any sudden fluctuations in the market. You can thus get more stable returns as compared to a complete wipe-out of the investment in case of any market fluctuations as is the risk with investing in pure equity funds. For young investors who are not as conservative, dynamic asset allocation features of some hybrid funds will be a major way to tap into positive scenarios arising from such fluctuations in the market.
Hybrid mutual funds are segmented into various types on the basis of asset allocation. Some funds have higher allocation of equities while others have higher allocation towards debt as well. Equity oriented hybrid funds have more than 65% being deployed in equities while the remainder is for money market and debt instruments. For debt based hybrid funds, more than 65% is allocated for debt with the remainder being earmarked for equities and money market instruments. Monthly income plans are those investing majorly in debt instruments with roughly 15-20% equity exposure. This allows for considerably higher returns as compared to regular debt funds. They offer dividend payouts based upon selected frequencies along with growth options, i.e. reinvesting the amount into the overall corpus as well.
Arbitrage Funds aim at scaling up returns by purchasing stocks at lower prices in a single market and then selling off the same at a higher valuation in another market as well. Yet, opportunities for arbitrage are not available as swiftly. If such opportunities are not present, then the funds may stick with debt instruments or even cash. By their structure, these funds are comparatively safer and are like most debt funds in the market. However, long-term capital gains are taxable for these funds, much like equity funds. Hence, keeping all these aspects in mind, it can be stated that hybrid funds are suitable choices for young investors, particularly those who want a better balance between risks and rewards. They are also ideal for those willing to tap into opportunities as and when they arise on account of market fluctuations.