Who Should Invest in a Hybrid Mutual Fund?

You’ve probably seen children playing musical chairs. They run around trying to fill the spaces between the chairs, while slowing down to get near the chair to make the music stop. This allows them to land on the chair safely. Some grown-ups behave the same way when it comes time to put their hard-earned cash to work. Because they are near a chair, the kids can switch between walking and running. This gives them the sense that if the music stops, it will stop. Some of our adult friends want to make good money in the market boom, but fear losing all their money. These people want to make money but don’t want to take the risks associated with investing in stocks.

Hybrid mutual funds are the best choice for such investors. They offer a moderate mix of risk and return and invest a large portion of the portfolio in stocks and a small amount in debt securities like corporate bonds and government bonds, bonds issued by banks, and money market instruments such as Treasury bills, Certificate of deposits (CDs), Commercial paper, and Banker’s acceptance.

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The majority of hybrid mutual funds, or balanced fund, tend to follow a 60:40 ratio between equities & debt. This allocation is a rough representation of the typical asset allocation pattern for such funds. Before investing in a hybrid mutual fund, you should consult the Scheme Information Document (SID) detailing the asset allocation.

How do you choose a Hybrid Mutual Fund

There are many hybrid funds that distinguish themselves from others in this category based on how they allocate their assets between equity and debt. An aggressive hybrid fund may allocate a large portion of its assets to equities, while a conservative fund will allocate more to debt and money markets instruments. Balanced funds, or moderate hybrid funds, tend to follow the middle path and allocate almost equal assets between equity and debt.

To choose a suitable hybrid fund look at the SID’s asset allocation and investment objectives. This will allow you to determine if a fund is suitable for you and if you can take on risk that is appropriate for the type of return you desire.

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Who should put money in a Hybrid Mutual Fund

These funds are great for retirees who want to have a safe place to save their whole lives but still get good returns. They can also be used to fund travel and medical expenses, as well as to keep ahead of inflation. These funds can also be used by new investors who want to enjoy the benefits mutual fund but are concerned about the possibility of losing their investment. Some hybrid funds are more conservative than others, so even those who want a higher return than what is offered by debt mutual funds may be able to choose from some of these funds.