Just like a balanced diet, a well-balanced mix of assets is needed for having a healthy
investment portfolio. Hybrid funds can potentially help you create this healthy mix. Listen to
Hari discuss hybrid funds with guest Bableen Kaur, Sr Product Manager at Axis Mutual Fund.
Learn all about an easy way to create a healthy and diversified portfolio in this episode!
[00:00:00] Welcome to Axis Moneynomics by Axis Mutual Fund
[00:00:09] Bablin, remember in school we were introduced to the concept of a balanced diet,
[00:00:15] just the right amount of all the nutrients that were required by the body,
[00:00:19] be it carbohydrates, proteins, fats, vitamins, minerals, water etc.
[00:00:27] I am just wondering, isn't balance also something that we need in our investments?
[00:00:32] Yes Hari, we surely need it in our investments.
[00:00:35] Let's talk about an easy way to get there.
[00:00:44] Hello, welcome to Axis Moneynomics by Axis Mutual Fund.
[00:00:49] Hi, I am Hari. In today's episode, we will discuss hybrid mutual funds in detail.
[00:00:56] If you are here for the first time, hit that follow button so you never miss an episode from us.
[00:01:03] In the previous episodes, we talked about what mutual funds are
[00:01:08] and what are the various types they come in.
[00:01:10] In case you missed out on those, worry not, just take a refresher and come right back.
[00:01:17] Bablin, can you tell us what hybrid mutual funds are all about?
[00:01:22] Well, Hari, so in simple terms, hybrid mutual funds invest in multiple asset classes.
[00:01:28] Generally, they are a blend of equity and debt securities.
[00:01:32] So if you are just beginning your investment journey and want to test the equity waters
[00:01:36] but are not too sure about the risks, you may consider exploring hybrid funds.
[00:01:41] So here, the debt component aims to offer some stability
[00:01:45] against the high volatility of their equity markets.
[00:01:48] So Bablin, you are saying that hybrid mutual funds give the advantage of
[00:01:53] accessing multiple asset categories through a single fund.
[00:01:56] But I have heard that there are many types of hybrid funds, Bablin.
[00:02:00] Yes, so there are indeed seven categories of hybrid mutual funds.
[00:02:04] Firstly, we have a conservative hybrid category,
[00:02:08] which is the most conservative category in the hybrid space.
[00:02:11] So these schemes mainly invest in debt instruments,
[00:02:14] and the debt component is 75% to 90% of your portfolio.
[00:02:19] And the remaining is invested in equity and equity-related instruments.
[00:02:23] So if you are a low risk investor, you may consider exploring conservative hybrid funds.
[00:02:28] Next, we have balance hybrid funds.
[00:02:31] As the name suggests, these funds usually seek to strike a balance
[00:02:35] between equity and debt instruments.
[00:02:37] So these funds would be ideal for investors
[00:02:41] who are seeking reasonable equity participation, but want relative stability.
[00:02:46] Then the next category, if you want to dig your toes deeper into the equity markets,
[00:02:52] this one is for you.
[00:02:53] Aggressive hybrid funds.
[00:02:55] So these funds typically invest 65% to 80% in equity and equity-related instruments,
[00:03:01] and the rest in fixed income.
[00:03:02] We have a dynamic asset allocation category wherein, you know,
[00:03:06] equity and debt proportion of your investments is not fixed,
[00:03:12] and it varies on the market conditions.
[00:03:14] Now another one is a very interesting, you know,
[00:03:17] kind of a fund proposition that I will talk about.
[00:03:19] So this is a multi-asset allocation fund.
[00:03:22] So these funds invest in at least three asset classes,
[00:03:25] and each asset class has a minimum 10% exposure.
[00:03:28] So these asset classes would typically be your equity, debt, and gold.
[00:03:33] And it will be a dynamic exposure to equity and debt that we have here.
[00:03:37] Dynamic asset allocation funds.
[00:03:39] You said, Bappleen invests in equity and debt on the basis of market condition.
[00:03:44] Can you just sort of explain this in more detail?
[00:03:47] Sure, Hari.
[00:03:48] So, you know, the allocation between debt and equity in these kinds of funds varies
[00:03:54] depending on the market conditions, right?
[00:03:56] So if the market conditions are favorable,
[00:03:58] a fund manager would tend to increase equity allocation.
[00:04:01] If the market conditions are not favorable,
[00:04:04] you know, equity allocation would be sort of reduced in your debt,
[00:04:08] becomes a larger part of the portfolio.
[00:04:10] Now, a lot of funds in the industry today
[00:04:13] are using certain models to determine this equity allocation.
[00:04:17] While there are other funds in which the fund manager takes a call on the
[00:04:21] what is a favorable market condition according to them
[00:04:23] and how much should be the equity allocation.
[00:04:25] So on an overall basis, generally minimum 65% exposure
[00:04:30] in terms of, you know, derivatives or investment in equity is maintained
[00:04:35] so that an investor gets a equity taxation in these schemes.
[00:04:39] We will come to taxation in some bit, Bappleen,
[00:04:42] but could you also take us through the remaining ones?
[00:04:45] So the next category is arbitrage funds.
[00:04:47] So these funds typically leverage the price differential
[00:04:51] in the cash and derivatives market to generate returns
[00:04:54] and the remaining allocation is into the fixed income instruments.
[00:04:58] So these funds have an equity taxation
[00:05:02] and the last category we have is an equity savings fund.
[00:05:05] So these funds offer a blend of equity, debt and arbitrage.
[00:05:09] You know, these three combinations of three which we are looking at in these schemes.
[00:05:14] That's very interesting, Bappleen.
[00:05:16] You talked about the seven categories,
[00:05:18] but there's a question that comes to my mind, you know.
[00:05:21] How does one choose, you know, which is the right hybrid fund for them?
[00:05:24] Yeah, so it depends on the investment objective
[00:05:27] of the investor.
[00:05:29] What is their risk appetite?
[00:05:32] So if you are, you know, an investor with a lower risk appetite,
[00:05:36] you should look at hybrid funds which have more exposure to fixed income,
[00:05:40] your debt securities.
[00:05:42] If you want higher exposure to equities,
[00:05:45] but you know, want relative stability in your portfolio,
[00:05:48] want to participate in that long-term wealth creation story,
[00:05:51] then you can look at funds which have a higher allocation to equities.
[00:05:56] Now, if you want to leave it to the fund manager,
[00:05:58] whether you should be invested in fixed income or equities,
[00:06:03] then you have categories like balance advantage
[00:06:05] where the decision is taken by the fund manager
[00:06:07] depending on the market conditions.
[00:06:09] So all in all, your investment appetite,
[00:06:13] your risk appetite, your investment objective.
[00:06:15] So these are broadly the parameters based on which
[00:06:18] you can decide the schemes that you want to invest in.
[00:06:20] Sure, Bappleen.
[00:06:21] I just want to quickly add one point, you know,
[00:06:24] while definitely all these factors need to be considered.
[00:06:27] There's one important factor that also must be looked at
[00:06:30] and that's the taxation bit.
[00:06:31] Let me sort of quickly explain this to all of you.
[00:06:34] If you are investing in a hybrid fund
[00:06:36] which has a higher component of equity,
[00:06:39] this fund will be taxed as per equity mutual funds.
[00:06:43] On the other hand, if you have a hybrid fund
[00:06:45] which has a larger component,
[00:06:47] which is into fixed income securities or debt,
[00:06:50] that fund will be categorized and taxed as per debt mutual fund taxation.
[00:06:55] Great Bappleen, you know,
[00:06:56] I think just as we started with hybrid funds,
[00:07:00] it seems it's all about balancing your portfolio
[00:07:02] because it has a mix of various asset classes and instruments in it.
[00:07:06] I'm sure the balancing is very important in life.
[00:07:11] It is very important in investments as well.
[00:07:13] If you're considering investing in hybrid mutual funds
[00:07:16] and you need further assistance with making an investment decision
[00:07:20] or you want to take the help of a tax consultant
[00:07:23] for any tax related queries,
[00:07:25] please do take the help of your mutual fund distributor
[00:07:28] or tax consultant as the case may be.
[00:07:31] And that brings us to the end of this episode of Access Moneynomics.
[00:07:36] Thank you for tuning in.
[00:07:43] If you found this episode helpful,
[00:07:45] don't forget to subscribe and feel free to share it with your friends
[00:07:50] who are exploring the world of investing.
[00:07:53] Remember to follow our podcast, Access Moneynomics,
[00:07:57] so you don't miss out on interesting topics.
[00:08:00] Until then, this is Hari signing off.