Hybrid Funds-Match Your Expectations of Capital Appreciation and Income Generation

hybrid fund

What dictates the investment? Any answer, folks? If you do not know, we tell you three things which go a long way in deciding the best investment option for you-Financial Goals, Investment Horizon and Risk-appetite. Well, if you carefully research the market, you would find the options of investment types which can either appreciate the growth of the invested capital or ensure a regular flow of income. A lot of stock investors, without a know-how of the market, end up burning their fingers. While those feeding on fixed deposits fail to get through the rigours of life with limited earning that the product offers. The returns of 5%-7% post-tax become almost inept to put on the safer path.

hybrid fund

But there is one product mutual fund that can bring smiles on your face without requiring you to be involved in the day-to-day trade that one has to be vigilant of while investing directly in the stocks. Mutual funds have a broader classification, of which you can choose hybrid funds, also known as balanced funds, to achieve the goals of capital appreciation and income generation. These funds invest in both equity and debt instruments in the proportion as deemed fit by the fund managers, who take care of the investors’ mutual fund portfolio, to meet the dual objective of growth and income.

Types of Hybrid Funds

The asset allocation can differ across various types of hybrid funds. So, come and check out the variants of hybrid funds up for grabs.

Equity-oriented Balanced Funds

The equity-oriented balanced funds allocate around 65% of the fund’s portfolio in equity & equity instruments and the rest in debt instruments. The reason for a major portion of the investment in equity is the friendly taxation structure that’s there for equity funds. If the investment in the equity fund is sold after a year, the resultant gains would be tax-free as it will come under long-term capital gain. It serves the purpose of investors with a moderate risk-profile who can face few risks to achieve the returns.

Arbitrage Funds

A type of equity-oriented mutual funds, arbitrage funds look to benefit the investors from the mispricing of a stock between the derivatives and futures market. What the fund manager does here is to increase the returns by picking the stock at a lower price in one market and disposing that at a higher price in another market. Considered as relatively safe funds, arbitrage funds let the investors gain the tax savings of equity funds over the long-term. However, in the absence of arbitrage opportunities, the fund investments would be either in debt instruments or cash.

Monthly Income Plans (MIPs)

These funds invest mainly in debt instruments by dispersing around 80%-85% of the portfolio there. The remaining 15%-20% is exposed to equities to generate good returns. MIPs serve as a regular income generation tool for the investors through dividends. Now it’s up to you as to which dividend payment option you want to choose. The dividends can be paid on a monthly, quarterly, half-yearly or yearly basis. The growth option is also available in MIPs to let the investments grow to become a huge corpus. However, you can’t get the payment of dividends while choosing this option.

A Glance at Fact File

The balanced funds have seen significant adoption by the investors with the folios going up to 10 lakhs in FY 2016-17, double the number it achieved in the previous fiscal at 5 lakhs. On the other hand, the asset under management (AUM) breached the level of ₹1 lakh crore in May 2017, rising from ₹42,965 crore a year back, according to the data released by Association of Mutual Funds in India, the industry body of mutual funds in the country.

So, assess your financial goals and risk-profile carefully and see whether hybrid funds emerge as the answer to the fulfillment of your cause. If so, then don’t hesitate and take a plunge with it to build on the capital and at the same time become the beneficiary of regular income to deal with the day-to-day expenses.


DisclaimerMutual Funds are subject to market risks. Please read the scheme related documents carefully before investing.

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