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3
Aug

Primer on Hybrid Funds (Post reclassification)

Recently SEBI has categorised and rationalised mutual fund schemes. Though mutual funds are increasingly becoming popular as avenues of investments, for the lay investor it was not easy to choose among the huge range of funds (837 open ended schemes) and know what was good for him. The re-classification was done with the aim of brining uniformity in offerings and giving clarity to investors as regards to the investment objective of each fund. The purpose was also to standardize the scheme categories and characteristics of each category so that the investor can evaluate different options available and make an informed decision.

The new classification has defined 6 funds under the hybrid category which was earlier known as balanced funds. Here is a primer on each of them and whom it is suited for.

  Category on schemes               Scheme Characteristics        RiskInvestment horizon
Conservative HybridInvestment in equity & equity related instruments- between 10% and 25%
of total assets;
Investment in Debt instruments between 75% and 90% of total assets
Low2-3 years
Balanced HybridEquity & Equity related instruments between 40% and 60% of total assets;
Debt instruments- between 40% and 60% of total assets
No Arbitrage would be permitted in this scheme
Moderate5-10 years
Aggressive HybridEquity & Equity related instruments between 65% and 80% of total assets;
Debt instruments- between 20% 35% of total assets
High5-10 years
Dynamic Asset Allocation or Balanced AdvantageInvestment in equity/ debt that is managed dynamicallyModerate2-3  years
Multi Asset AllocationInvests in at least three asset classes with a minimum allocation of at least 10% each in all three asset classesDepends on composition of fund3-5 years
Arbitrage FundsScheme following arbitrage strategy. Minimum investment in equity & equity related instruments-
65% of total assets
Low6-12 months
Equity SavingsMinimum investment in equity & equity related instruments- 65% of total assets and minimum
investment in debt- 10% of total assets
Moderate1-3 years

 

Conservative Hybrid Funds: As the name suggests, this is for conservative investors. So these are predominantly debt funds which offer capital protection with minimal equity exposure to investors. If your investments have been only in debt instruments like fixed deposits, conservative hybrid funds are a good way of getting an equity exposure. Such funds are also a good option for an investment horizon of 2-3 years where one wants capital protection with a bit of equity exposure.

Balanced Hybrid Funds: These funds invest in equal proportions in debt and equity. These funds are for those who can take a bit more risk than conservative investors but less risk than aggressive investors and are investing for the long term.

Aggressive Hybrid Funds:  Only those who have a high appetite for risk should go for such funds. But remember that the fund manager can invest up to 80 per cent of the funds in equities, including mid-cap and even small-cap which makes them riskier than Blue Chip funds. So such funds should be earmarked for goals that are at least 5-10 years away.

Multi-asset-allocation: These funds have a mandate to invest in three asset classes with a minimum of 10 per cent in each. Apart from equity and debt, the third asset class can be gold, commodities and so on. These funds are a good option if you want to diversify your portfolio as they invest in asset classes that are not co-related and hence reduce risk of the overall portfolio. Investing separately in different asset classes could turn out to be cumbersome, multi-asset-allocation funds provide an alternative where the fund is managed by a professional fund manager.

Dynamic Asset Allocation: In this category of funds, investments in debt and equity are managed dynamically, based mostly on certain pre-determined market indicators. These schemes are suited mostly for the first time investors and conservative investors, because the exposure to equity automatically decreases if the markets become expensive.

Arbitrage funds: These schemes follow an arbitrage strategy which means that they leverage the price differential in the cash and derivatives market to generate returns. These funds are suitable for investors who are looking to park their money with low risk in a volatile market for a short term.

Equity Savings: These funds invest a maximum of 65 per cent of their total assets in equity and equity related assets and a minimum of 10 per cent in debt. They funds aim to balance risks by investing in equity, debt and arbitrage. The equity component has the potential to provide higher returns, while the debt part enables stable returns. The arbitrage part ensures that these funds make the most of volatile market conditions. These funds are suitable for investors with a 1-3 year investment horizon.

Now, you can invest in any category of mutual funds through the web or mobile through Edelweiss Partners. Our partners will help you initiate transaction and redemption, start SIP instantly using SIP net banking and view your online investment portfolio, net worth and statements. You can also get expert analysis, recommendations and advice on goal–based financial planning.

    Scheme Category             Portfolio Characteristics     Scheme               Category       Portfolio Characteristics
Conservative Hybrid

Investment in equity & equity related instruments- between 10% and 25% of total assets;

Investment in Debt instruments between 75% and 90% of total assets

Multi Asset AllocationInvests in at least three asset classes with a minimum allocation of at least 10% each in all three asset classes
Balanced Hybrid

Equity & Equity related instruments between - 40% and 60% of total assets;

Debt instruments- between 40% and 60% of total assets

No Arbitrage would be permitted in this scheme

Arbitrage FundsScheme following arbitrage strategy. Minimum investment in equity & equity related instruments- 65% of total assets
Aggressive Hybrid

Equity & Equity related instruments between 65% and 80% of total assets;

Debt instruments- between 20% 35% of total assets

Equity Savings

Minimum investment in equity & equity related instruments- 65% of total assets and

minimum investment in debt- 10% of total assets

Dynamic Asset Allocation or Balanced AdvantageInvestment in equity/ debt that is managed dynamically  

 

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