What Are Hybrid Mutual Funds - Meaning & Who Should Invest

18 Feb 2022|

2 min read |

by ICICI Securities Team

Introduction to Hybrid Mutual Funds in India

A hybrid fund is a mutual fund scheme that contains a mixture of assets like stocks, bonds, sometimes even gold in a single fund. The diverse nature of the funds helps in minimizing your risks. You can afford to trade with high risk-high return stocks, knowing that if they do get affected, you have safer assets like bonds in your fund to cushion any volatility in the market. You could also get exposure to different asset classes, which otherwise would be challenging to have.

What Are Hybrid Mutual Funds?

The mutual funds' industry in India started in the early 60s. In 1988, the Unit Trust of India's first public sector investment institution had Rs.6700 crores of assets under management (AUM). As per the annual report published by the Ministry of Finance for the year 2020-21, the AUM of the mutual fund industry stood at about Rs.22.26 lakh crores in March 2020. But the impact of Covid-19 affected the industry in the latter half of the year. The equity markets saw several sells off. Lockdowns by the government and lack of certainty about the future lead to massive fluctuations in the market.

A year later, the stock markets are now at an all-time high. Investors are re-evaluating hybrid funds. According to the data by the Association of Mutual Funds in India (AMFI), for the quarter ended June 2021, hybrid funds had a net inflow of Rs 27,220 crores, a jump from Rs 13,055 crores recorded for the quarter ended March.

Who Should Invest in Hybrid Funds?

Even though hybrid funds are considered riskier than debt funds, they are safer than equity funds. They offer better returns and lower risks. They are considered a good option for new investors who are uncertain about the market, as they provide stability even while testing the equity market's volatility. Investors who tend to panic during sharp market corrections are more accepting of these risk-return outcomes.

Key Factors Investors Should Know About Hybrid Funds

As an investor in a hybrid fun, you should accept that hybrids funds are not entirely without risks and should also be prepared not to expect guaranteed returns. You should weigh in the expense ratio (the fee for managing a portfolio) among other competing funds and select the ones with the lowest fee. You should also be aware of their investment horizon and chose the fund to invest accordingly - you must know which funds would be ideal for the length of time that you are willing to hold their portfolio. You may want investments for a few days or to invest for decades. You should also know that the equity component of hybrid funds and long-term and short-term gains from hybrid funds are taxed.

Additional read: Who should invest and how to choose a hybrid fund

Conclusion

So, before you invest in a hybrid fund, it is essential to also check the asset quality in these funds. You need to ensure that you invest in high- quality-investment grade bonds, sound government securities and reliable blue-chip stocks. Your choice must always reflect your appetite for risk and not for the returns generated.

Disclaimer

ICICI Securities Limited has its registered office at ICICI Venture House, Appasaheb Marathe Marg, Prabhadevi, Mumbai - 400025, India, Tel No:- 022 - 2288 2460, 022 - 2288 2470. The non-broking products / services like iLearn and Financial Learning are not exchange traded products / services and ICICI Securities Ltd. is just acting as a distributor/ referral Agent of such products / services and all disputes with respect to the distribution activity would not have access to Exchange investor redressal or Arbitration mechanism. iLearn is not an exchange traded product/service of ICICI Securities Ltd. All disputes with respect to the activity on the platform would not have access to Exchange investor redressal or Arbitration mechanism.

ICICI Securities Ltd. is a Member of National Stock Exchange of India Ltd (Member Code :07730), BSE Ltd (Member Code :103) and Member of Multi Commodity Exchange of India Ltd. (Member Code: 56250) and having SEBI registration no. INZ000183631. ICICI Securities Ltd. is a SEBI registered with SEBI as a Research Analyst vide registration no. INH000000990. Name of the Compliance officer (broking): Mr. Atul Agrawal, Contact number: 022-69997051, E-mail address: complianceofficer@icicisecurities.com Investments in securities markets are subject to market risks, read all the related documents carefully before investing. The contents herein above shall not be considered as an invitation or persuasion to trade or invest. ICICI Securities Ltd. and affiliates accept no liabilities for any loss or damage of any kind arising out of any actions taken in reliance thereon. Such representations are not indicative of future results. The securities quoted are exemplary and are not recommendatory. AMFI Regn. No.: ARN-0845. PFRDA registration numbers: POP no -05092018. ICICI Securities Ltd. acts as a Composite Corporate agent having registration number -CA0113. Mutual Fund Investments are subject to market risks, read all scheme related documents carefully. Please note, Mutual Fund, Corporate Fixed Deposits, Bonds, Alternate investment funds, Tax planning, Succession planning, NPS, IPO, Investment Advisory and Loans related services are not Exchange traded products and ICICI Securities Ltd. is acting as a distributor to solicit these products. Please note, Insurance related services are not Exchange traded products and ICICI Securities Ltd. is acting as a corporate agent to solicit these products. All disputes with respect to the distribution activity, would not have access to Exchange investor redressal forum or Arbitration mechanism. The non-broking products / services like Research, etc. are not exchange traded products / services and all disputes with respect to such activities would not have access to Exchange investor redressal or Arbitration mechanism. The contents herein above are solely for informational purpose and may not be used or considered as an offer document or solicitation of offer to buy or sell or subscribe for securities or other financial instruments or any other product. Investors should consult their financial advisers whether the product is suitable for them before taking any decision. The contents herein mentioned are solely for informational and educational purpose.

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