HYBRID MUTUAL FUND

 

Hybrid means a thing made by combining two or more different elements. Here we discuss about hybrid type mutual fund. A hybrid fund is simply one of the major types of mutual funds in which the funds invest in two or more asset classes. Although the majority of the funds asset allocation consist of mix of stocks and bonds, only a handful of them have a broader asset allocation that includes gold, commodities and real estate investment trusts (REIT). Furthermore, even funds that seek to profit from arbitrage possibilities are categories as hybrid funds. The primary concepts behind hybrid funds are asset allocation, correlation and diversification. Asset allocation is the process of spreading investment among multiple asset types.

TYPES OF HYBRID FUNDS :

1.       Conservative Hybrid Funds.

2.       Aggressive Hybrid Funds.

3.       Balanced Hybrid Funds.

4.       Balance Advantage Funds.

5.       Multi Asset Allocation Funds.

6.       Arbitrage Funds.

7.       Equity Savings Funds.

Conservative Hybrid Funds:  Conservative hybrid funds invest around 75 per cent to 90 per cent of their entire assets in debt securities and associated products, with the remaining 10 per cent to 25 per cent committed to equity and related products.

Aggressive Hybrid Funds:    Aggressive hybrid funds invest a minimum of 65 per cent and a maximum of 80 per cent of their asset in equity and associated securities with the remaining 20 per cent to 35 per cent committed to debt and similar products.

Balance Hybrid funds :   Balance hybrid funds are permitted by SEBI guidelines to invest a minimum of 40 per cent and a maximum of 60 per cent in equities and associated instrument as well as debt securities. This funds primary goal is to achieve long term capital appreciation by investing inequities while balancing risk through investment in debt. Unlike other hybrid funds, this fund is not permitted to engage in arbitrage.

Balance Advantage Fund:    Balance Advantage Fund is also known as Dynamic Asset Allocation funds have asset allocation that can range from 100 per cent stock to 100 per cent debt. As a result, we may describe these funds as really dynamic in character. The asset allocation of a fund is often determined based on the investing philosophy and asset allocation models of the individual mutual funds.

Multi Asset Allocation Fund : According to the SEBI requirement, a multi – asset allocation fund must invest in at least three asset classes, with minimum of 10 per cent allocate to each asset class. These funds, in addition to equities and debt, include exposure to third asset classes such as gold, commodities and real estate through REIT.

Arbitrage Funds :  Arbitrage is a method in which fund manager buy in the spot or cash market while selling in the future market.

Equity Saving Funds:    The equity saving fund invest in stock, derivatives, and debt securities. These are the funds that invest in the aforementioned securities in an attempt to balance risk and return. In terms of asset allocation these schemes allocate around 65 per cent to 100 per cent of their asset to stocks including derivativesand 0 per cent to 35 per cent of their asset to debt securities.