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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.

Equity Mutual Funds – Types, Benefits and SIP (Systematic Investment Plan)

The Government has been introducing different ways to improve the economic condition of the people. The Government has introduced several ways such as the mutual funds and savings schemes. Out of which Equity Mutual Funds is one of the clever savings fund schemes. Putting your contribution in the Equity Mutual Funds will provide you with lots of benefits. In this article, we are going to provide you the complete information regarding the Equity Mutual Funds.

                                               Equity Mutual Funds and Why Should one Prefer to Invest in them

The Equity Mutual Funds are the type of funds that are usually invested principally in stocks which means the Stock Market. The stocks mutual funds can be classified on the basis of the company size and other related things such as the investment style of the holdings in the portfolio and geography. The size denotes the company’s capitalization, investment style etc.

These funds buy the shares of the companies in a larger quantity with an aim to receive high returns by participating in the company’s growth. The primary objective of the Equity Funds is that it will generate higher returns than fixed income investments like the debt funds or the fixed deposits. The equity funds are ideal for fulfilling long-term goals as well as for building wealth.

Working Principle of the Equity Mutual Funds

The Equity Mutual Funds completely focuses on the assets class that is mentioned in its investment mandate. The assets denote the stocks of the companies. The equity fund can also invest in the bonds and papers as well and keep a certain amount of cash. But the primary assets of these funds are the stocks.

Every equity fund has a fund manager who has a vast knowledge and experience regarding the purchase and sells of the stocks. The fund manager has a team of research through which they can analyze and cleverly invest in the best stocks that have the highest profitability. It is the fund manager and his team who decides which stocks to invest in and which stocks to sell. You will receive this professional fund management service for a nominal annual fee which the fund deducts it from your invested money.

Types of Equity Mutual Funds

Equity Mutual Funds has a broad category of funds. There are different types of equity mutual funds and they are further categorized based on their investment mandate and the kind of stocks and sectors they invest in.

Below are some of the types of Equity Mutual Funds from the customers/ the companies and choose and select based on their needs and requirements.

Diversified Equity Mutual Funds

These are the types of funds that are mainly used to invest in the sectors and market capitalizations. Which means that the funds are not restricted to invest in a particular type of stocks. They can put their investment in any type of company, be it large companies or mid-sized company or small companies. These funds are also diversified across sectors and industries and they are not confined to any investments within a particular part of the economy.

Sector and Thematic Funds

These types of equity funds put their investments on those options that have a particular sector or theme. The sector funds are those that invest in one particular industry like FMCG or Pharma or Technology whereas, the thematic funds are those that follow a particular theme, like emerging consumer companies or international stocks etc. Since the sector and thematic funds are concentrated, they can be a little riskier to invest rather than the Diversified Equity Funds. It’s a 2% risky option because their performance is completely dependent on one particular section of the company. However, the sector and the thematic funds can be diversified in terms of the market capitalization.

Large Cap, Mid-Cap, Small-Cap and Multi-Cap Equity Funds

This type of equity funds invests primarily in large-cap stocks. Different funds categorize the stocks differently. The large-cap stocks are the stocks of the biggest companies of the economy. These are the well-established companies which make the large-cap funds stable and reliable in the investments.

The Mid-Cap and the small-cap equity funds are those that invest in the mid-sized and small-sized funds. One basic demerit of the small companies is that the smaller companies are prone to volatility whereas, the mid-cap and the small-cap funds deliver fluctuating returns.

The Multi-Cap Equity Funds are the types of funds that invest in the market capitalization which includes the Large-cap, Mid-Cap, small-cap funds.

Index Funds

These are the Equity Funds that follow a particular index. These are very static-managed funds that invest in the same companies, in exact same proportions that make up the index the fund follows. For example, the Sensex Index fund will have investments in all the 30 Sensex Companies in the same proportion in which the companies form a part of the index. The Index Funds are low-cost funds that do not require an active management of a fund manager.

Benefits of Investing In the Equity Funds

Easy To Investment: (Low Cost)

Anyone and everyone can invest in the Equity Mutual Fund through SIP Mode. One can start investing with just Rs 500 per month. The SIP also allows periodic investments through ECS (Electronic Clearing Service) process where the money is automatically deducted from the bank account every month at a particular date.

Capital Appreciation

Capital Appreciation Benefit is one of the basic primary reason for investing in the Equity Mutual Funds. It is one of such Financial Instrument that will provide you high inflation beating the returns. If there is an increase in the stock prices, then it will reflect in the appreciation in the invested money. Through the equity funds, one can accumulate a good amount of money after a certain period of time.

Portfolio Diversification

When you invest in the Equity Mutual Funds, it spreads into different sectors resulting in reducing the risk of losses in future. Therefore, if some stocks are underperformed at the exchange, then the outperforming ones can make up for the losses. Thus, in this way, it loses the market risk in the overall portfolio.

Financial Goal-Oriented Funds

If you have long-term financial goals, then the Equity Funds are one of the best vehicles to achieve this goal. These funds are categorized into small-cap, mid-cap and large-cap etc. along with the returns that vary from funds to funds. The higher the risk is associated, the more you have the chances of receiving Higher Returns to achieve your target amount.

Tax Planning Option

When you are investing in the Equity Linked Saving Scheme (ELSS) funds, you can avail the tax benefits. Investing a lump-sum amount for 3 years lock-in period will help you to get a tax deduction in the current financial year for up to Rs 1.5 Lakh under the Section 80C of the Income Tax Act 1961. These funds that least lock-in as compared to the other tax planning avenues and these funds provide a higher return when compared to the other Tax-saving Financial Instruments. However, the returns are market-linked and are not guaranteed.

Tax-Free Returns

If your investments in the Equity Mutual Funds go beyond the holding period of 12 years, then the returns become tax-free. However, if it is redeemed before a year then the short-term capital gain tax is applied at a rate of 15% which will reduce your appreciated capital to a higher level and your actual returns will turn negative. There it is recommended to invest for a long time so that you can earn a high compound return and get all your money tax free once redeemed.

Professionally Managed

It is not required to review the funds daily as the schemes are managed professionally by the fund managers. When an investor is unable to invest in the equities due to the lack of the Financial Market Knowledge then Equity funds are the best option to choose on the behalf of several investors.

Easy to Liquidate

Getting the collect back to the bank account is very easy when you are investing through the mutual funds. You can redeem it at any point of time. When you are in the need of money you can stop your SIP and can redeem the number of free or all the units you want. The complete process takes around a week’s time, but if your SIP has matured then you can get your money back in three days.

SIP- The Best Way to Invest in the Equity Funds

SIP which is otherwise called as the Systematic Investment Plan is the most effective way to invest in the Equity Funds. A SIP is usually a monthly investment that takes place automatically on a pre-decided date. You need to give a mandate to the fund company to deduct in the investment from your bank account.

The SIP average out the cost of your investment. This denotes that when your market level is high then you will be provided with few units. And when the markets are low, then you will be allotted with more units of the same amount. In this way, you invest in different levels of the market.

The SIPs are the automated investments that ensure you to save a designated amount of fund every month.