Invest In Hybrid Funds At Current Market Levels

Post election results, markets have regained their mojo. But with the Sensex approaching 80,000 levels, some investors might worry about Indian markets. So, instead of relying on one single asset class such as equity for performance, hybrid investing could be a smart and prudent solution now.

Like a balanced meal nourishes our bodies, a hybrid portfolio nourishes financial goals. This approach involves investing in two or more assets, potentially lowering risk while still allowing gains to flourish. Such a balanced and optimised route is ideal in today's market.

While the outlook for equities, fixed income, and gold remains attractive, hybrid investing by combining different asset classes gives investors the best of all worlds.

Market outlook

Make no mistake, the fundamental drivers of India’s multi-decade consumption and infrastructure growth are still firmly in place. Although India’s macros look robust, equity valuations are not cheap. This warrants an investment approach in hybrid and multi asset allocation mutual funds which can dynamically manage exposure to various asset classes.

Hybrid and multi asset allocation can be opportunistic in reducing equity exposure or moving to other attractive asset classes.

Hybrid focus

Traditional debt investments offer stability, but their long-term returns often don't beat inflation. Gold can be a safe haven during volatility but isn't enough for long-term wealth creation. Equities can beat inflation, but they will regularly come with periods of volatility.

Hybrid investing mitigates these issues by combining different assets. It offers the benefits of each while softening the impact of their drawbacks.

Since hybrid investing caters to different risk appetites, it can be an all-weather approach. Be it new or old investors, and also those seeking diversification and stability, hybrid mutual funds (schemes) can be highly relevant.

Multiple strategies

Different types of hybrid investing strategies/schemes/mutual funds serve different risk appetites. Following are various types of hybrid mutual fund strategies available

Conservative hybrid strategy: Primarily invests in debt securities (75-90%) with a smaller allocation to equities (10-25%). This offers stability with a small exposure to potential equity gains. Thus, this strategy is suitable for risk-averse investors in uncertain markets.

Balanced Hybrid Funds: Invest 40-60% in equities and 40-60% in debt. No arbitrage in the scheme.

Aggressive hybrid funds: Invest 65-80% in equities and the rest in debt. This calibrated exposure to both asset classes benefits from market upswings, while cutting some risk.

Dynamic asset allocation strategy: Adjusts its allocation between equities and debt based on market conditions. The strategy adapts to changing market conditions, offering flexibility and potentially maximising returns while better managing risk than a fixed asset allocation approach.

Multi-asset allocation strategy: This framework invests in at least three asset classes, with a minimum of 10% in each. So, this strategy is suitable for investors eyeing broad diversification across various asset classes (such as equity, debt, gold/silver, etc) and wanting lower portfolio risk.

Arbitrage strategy: This approach generates returns by exploiting price differences in different markets. This strategy is suitable for those seeking consistent returns regardless of the market going up or down.

Equity savings strategy: Invests in equity, arbitrage and debt. For those preferring less risk, this strategy can be considered. In the equity portion, the funds use derivatives, thus lowering the risk profile of the exposure. Such an offering seeks to generate better-than debt, but less than equity returns for investors.

With the potential for hybrid funds bright, investors must consider this option for positive investment experiences.