Hybrid funds catch investor's fancy

Hybrid schemes, which comprise of conservative and aggressive hybrid funds, as well as dynamic asset allocation, balanced advantage, arbitrage and equity savings funds have gained momentum in recent times, driven by increasingly growing investor confidence. Registering overall inflows worth Rs 17,130.53 crores in October, 2023, arbitrage funds stood as a clear winner amongst them all, amassing Rs 5,523.15 crores, as per AMFI data. 

The only scheme in this pool to see reds last month were conservative hybrid funds, which saw Rs 1.73 crores worth of outflows. Notably, this category saw inflows worth Rs 82.27 crores in September, 2023, while only gathering Rs 513.72 crores between July-September, 2023. Over the last 7 months, hybrid funds have managed to amass over Rs 72,000 crores. 

Arbitrage funds, on the other hand, continued their upward march, seeing inflows worth Rs 5,523.15 crores in October, 2023. While substantial, the figure has mellowed down from Rs 10,175.55 crores in September, 2023 and Rs 29,733 crores between July and September 2023. 

Hybrid schemes have been on a solid run, gathering Rs 48,152.87 crores between July-September, 2023 and Rs 14,021.02 crores between April-June, 2023. 

Notably, hybrid funds are those which invest in a combination of assets like equity and debt instead of concentrating on a single asset class. This helps the investor reap the benefits of diversification with a single investment. 

Hybrid schemes can either be equity oriented or debt oriented, depending on the asset class it has invested its majority of funds in. For a mutual fund scheme to be equity-oriented, it is required to invest at least 65% of its total assets in equities. 

Within this there are aggressive hybrid funds, which allocate 65-80% of their assets exclusively to equities. There are also conservative hybrid funds, which put forth 10-25% of their assets in equities, but the rest of their funds, which could be as high as 90% of their total assets, into debt securities. 

In order for a mutual fund scheme to be classified as a debt-oriented scheme, a minimum of 60% of its total assets must be invested in fixed income assets like bonds, debentures and others. For investors seeking greater flexibility, there’s dynamic asset allocation, which allows the fund manager to invest the majority of the fund’s assets in a single asset class, be it equity or debt. However, this depends on how the markets are performing, given that the underlying objective remains return maximization.