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Hybrid Funds | Types of Hybrid Funds

If you are planning to buy any mutual funds that can invest in more than one security types, then Hybrid Funds are an excellent option for this category of investment.

The Hybrid Fund is a smart option for the beginners in the complete portfolio of the Mutual Funds.


What do you understand by a Hybrid Funds

The Hybrid funds are otherwise called as the Balance Funds or the asset allocation funds. The Hybrid Funds are the mutual funds that provide a combination of more than one investment asset class such as stocks, bond, and cash.

The Hybrid Funds offers the investors a diversified portfolio. The Hybrid fund indicates that the fund strategy includes the investment in multiple assets. This fund also uses an alternative mixed management approach. Thus, the hybrid funds are the combination of the bonds and the stocks and are stated objective such as aggressive, moderate or conservative.

Therefore, if you want to invest in any type of the Hybrid Fund then it should completely depend on the asset allocation mix.

Types of Hybrid Funds

The Hybrid Funds can be differentiated on the basis of their allocation to equity and debt. There are some types of Hybrid Funds that have a higher allocation equity whereas, some to debt. Now let’s know about these funds in details:

Balanced Funds

These are the most popular type of Hybrid funds. The balanced funds invest around 65% of its portfolio in the equity and equity-oriented instruments. This allows them to qualify as the equity mutual funds for the purpose of taxation. This means that the gain that is received from the Balanced Funds is held for a period of over 1 year so as to become completely tax-free.

The rest amount of the fund assets are invested in other sources such as the debt securities and some amount can be kept in cash also. The Balanced funds are the ideal investments for the conservative investors who wish to earn benefits from the return-earning capacity of the equities without taking too many risks.

The fixed income exposure of the Balanced Funds will help to mitigate the equity related risks.

Monthly Income Plans

These are the hybrid funds that invest especially in the debt instruments. A basic Monthly Income Plan (MIP) has an exposure of 15-20% to the equities. This will allow generating higher returns than the regular debt funds. The MIPs offers regular income to the investor in the form of the dividends. This comes in monthly, quarterly, half-yearly or annually form. These options are available in the dividend option. The MIPs are also available with the growth option that does not pay any dividend but the investments grow in the fund’s corpus. Thus, the MIPs are not treated as the Monthly Income Investment. So if you are planning to invest, then MIPs are the best option as it mostly invests in debt and some amount in the equities.

Arbitrage Funds

The Arbitrage Funds are the equity oriented mutual funds that take advantage of the mispricing in the price of stock between the future market and derivative market. The fund manager looks for an opportunity where he can maximize the returns by purchasing the stocks at lower rates in one market and selling it at a higher price in another market. These funds are quite safe to use. They also enjoy the tax efficiency of the equity funds and also offers long-term returns which are tax-free.

These funds are not available easily. In the absence of the arbitrage opportunities, these funds will stay invested in the debt instruments or crash. This is why they are called as the Hybrid Funds.

These are the popular types of the Hybrid Funds. There are also Hybrid Funds that are specially designed for children’s education and retirement. These funds offer an effective goal-orientation. Therefore, before putting your investment on any type of the Hybrid Fund try to understand the asset allocation they offer.

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