People invest in mutual funds with different financial goals. Whether it is to retire early, buy a new home, or simply build up a savings fund, the goal is to minimise risk while achieving these aims. But investing in just one asset class does not guarantee you will reach your goals. The market is unpredictable, and one wrong investment can lead to huge losses. So, diversification among different asset classes is important to manage risk, grab emerging opportunities, and maximise returns.
But how do you achieve diversification without investing in each asset class separately? This is where hybrid mutual funds help. By investing in equities, debt securities, and even commodities like gold, hybrid funds can bring balance to your portfolio and help you reach your financial goals. Let’s find out how.
- You can choose from different types of hybrid funds
There are many types of hybrid funds with different strategies that target different investors. You can choose a hybrid mutual fund scheme as per your risk profile, investment horizon, and goals.
For example, arbitrage funds take advantage of price differences in different markets to manage risk and optimise returns. Conservative hybrid funds invest in debt instruments and equity where the maximum of 75% and 90% of the fund is in debt securities. Aggressive hybrid funds can invest up to 80% in equity instruments and are preferred by high-risk investors. Coming to dynamic asset allocation funds, they invest in equities and debt securities based on market movements.
- Eliminate the cost of investing in each asset class separately
Investors who want to invest in multiple investment options, such as equity, bonds, gold, etc., have to invest their money in different funds. It means there are costs like brokerage, transaction, and management fees involved with each investment. But hybrid funds help investors invest in different asset classes through a single fund, saving money and time.
Investment fees matter because the more you save on these costs, the more capital you get to reinvest. It further helps to boost your return potential in the long term.
- Benefits of different asset classes
Having exposure to multiple asset classes helps reduce risk. For example, stocks have high growth potential, but due to their volatile nature these funds fluctuate more. By adding bonds and other fixed-income securities in a portfolio, hybrid funds help you balance the impact of market fluctuations. This way, you get more stability during volatile markets and optimise long-term returns.
Also, different assets perform better at different times, and it’s difficult to predict which ones will outperform each other at what time. When you diversify with multiple asset classes, you can take advantage of different market trends without relying too heavily on any single investment.
- Active risk management to support your goals
Hybrid funds, such as balanced advantage funds, offer active risk management. With their dynamic allocation of assets based on market movements, you can leverage emerging opportunities to support your financial goals. Your investments are managed in real-time to mitigate risks and capitalise on opportunities. This way, you increase the chances of achieving your target goals in a strategic way.
To wrap up
With flexibility, ability to balance risk and returns, and diversification as its key features, you can use hybrid funds to achieve different financial goals. No matter if you are a conservative, moderate or aggressive investor, you can choose from different types of hybrid funds to match your investment style.
To maximise your potential returns and ensure long term growth, always research the fund first and compare it with other funds. The research should include evaluating the fund’s track record, returns consistency of 3-5 years, portfolio holdings, cost structure, and fund manager’s risk-taking approach. Besides self-research and analysis, working with a financial advisor can help you create a personalised strategy with hybrid funds that aligns with your goals.