Hybrid mutual funds: Balancing risk and return

<!–

Hybrid mutual funds have gained significant attention from investors looking for safer investment options amidst global market turbulence. These funds offer a balanced approach by combining multiple asset classes, typically equity, debt, and sometimes commodities like gold and silver. As a result, hybrid funds provide diversification, which helps reduce risk while ensuring the possibility of consistent returns.

In August, the assets under management (AUM) for hybrid funds reached a record high of Rs 8.61 lakh crore, making them one of the fastest-growing categories in the mutual fund industry.

The key advantage of hybrid funds lies in their ability to balance risk and return. The equity portion provides potential for capital growth, especially when markets are performing well, while the debt component adds stability and lowers volatility. This makes hybrid funds appealing to investors seeking both short-term stability and long-term wealth generation. Another benefit is diversification, as hybrid funds spread investments across different asset classes and within subcategories like large-cap, mid-cap, and small-cap stocks.

Active portfolio rebalancing is another feature of hybrid funds, where fund managers adjust the asset allocation based on changing market conditions. This allows for optimization of returns and better risk management. Additionally, hybrid funds offer simplicity, enabling investors to access multiple asset categories through a single fund rather than maintaining separate investments across different funds.

While hybrid funds offer numerous advantages, they also carry certain risks. The equity component can be affected by market volatility, and the debt portion is sensitive to changes in interest rates. There is also a reliance on the expertise of fund managers, whose performance can vary based on their ability to make sound investment decisions and manage risks effectively. Fund houses like Nippon India Mutual Fund, ICICI Prudential, SBI, and Aditya Birla offer a wide range of hybrid funds. Nippon India’s Multi Asset Allocation Fund and the Balanced Advantage Fund, have posted strong returns, with some funds delivering returns of 35.82% and 25.75% over the past year.

Hybrid mutual funds offer a unique opportunity for investors to access both growth and stability in one product. By allowing for exposure to multiple asset classes, they simplify the investment process and provide a balanced approach to managing risk and returns.

However, investors should carefully assess the risks and choose funds that align with their financial goals and risk tolerance.

<!–

–>

END OF ARTICLE