Retail investors aspiring for long-term wealth creation are often recommended to curate a portfolio which has a blend of equity as well as debt. A well-rounded portfolio is the one that can sail through volatility with ease. Therefore, hybrid mutual funds — which have an allocation to both equity and debt — are considered apt for retail investors.
While investment in equity gives growth opportunity, debt provides stability through regular returns. Broadly, hybrid mutual funds are either equity-oriented or debt-oriented. The equity-oriented schemes are meant for aggressive investors, debt-oriented schemes – at the same time — cater to the conservative investors who have a low risk appetite.
The Sebi’s categorisation of mutual fund schemes has divided hybrid mutual funds into seven categories. These categories are conservative, balanced, aggressive, dynamic asset allocation, multi asset allocation, arbitrage and equity savings.
Out of these seven types, the most popular hybrid mutual funds are balanced, aggressive hybrid funds, dynamic asset allocation funds and arbitrage funds.
I. Balanced hybrid funds: These funds have 40 to 60 percent allocation to equity & equity related instruments while the remaining (40 to 60 percent) to debt instruments.
II. Aggressive hybrid funds: As the name suggests, these mutual funds have a high allocation (i.e., 65 to 80 per cent) to equity & equity related instruments while the remaining 20 to 35 per cent to debt instruments.
There are a total of 31 balanced and aggressive mutual fund schemes with total assets amounting to ₹2.03 lakh crore as on May 31, 2024.
III. Dynamic asset allocation funds: Also known as balanced advantage funds, these schemes keep the ratio between equity and debt dynamic. This means there could be 0 to 100 percent investment in equity & equity-related instruments and 0 to 100 percent in debt instruments.
There are a total of 33 schemes in this category and total assets amounting to ₹2.60 lakh crore as on May 31, 2024.
Dynamic asset allocation funds are most popular among all the categories of hybrid mutual funds in terms of number of schemes as well as total amount of assets.
IV: Arbitrage funds: These mutual funds follow an arbitrage strategy with minimum 65 percent investment in equity & equity related instruments. There are a total of 27 schemes in this category with total assets under management (AUMs) amounting to ₹1.80 lakh crore.
Note: This story is for informational purposes only. Please speak to a SEBI-registered investment advisor before making any investment related decision.
