When it comes to long-term market investments, very few options are better than mutual funds. Since mutual funds invest in a basket of different assets, they come with inherent diversification, which tends to reduce the investment risk. That’s not all.
With mutual funds, there are multiple different types of funds that you can invest in as well. There are mutual funds that invest in the equity market, the debt market, the commodity market, in gold, and sometimes in a mix of different markets too.
Yes, you read that right. Some mutual funds investments tend to spread out the investors’ money by investing it in multiple different markets. These types of funds are what investors refer to as hybrid funds. Want to know more about them? Continue reading to find out.
As you’ve already seen above, a hybrid fund is basically a type of mutual fund that invests the pooled money of investors in a mix of different financial markets or asset classes.
Usually, hybrid funds tend to generally invest in a mix of the equity market and the debt market. However, there are many other hybrid funds that invest in equity and commodity, equity and gold, and so on and so forth.
Some funds, although they invest only in the equity market, are referred to as hybrid funds by investors just because they invest in a mix of growth and value stocks.
- What are the advantages offered by a hybrid fund?
Investors often tend to view hybrid funds as a more safe and low-risk investment option in the long run. This is simply due to the increased diversification that such types of funds offer over more conventional mutual funds investments.
Since hybrid funds typically invest in markets that share a slightly inverse relationship, such as the bond market and the equity market, it offers protection from downsides to a certain extent.
Balanced funds, which invest 60% of the funds in the equity market and the remaining 40% in the debt market, is a very good example of a hybrid fund. When the equity market is underperforming, the gains from the bond market will offset any losses that the fund might incur and vice versa.
And since hybrid funds are actively managed mutual funds, the fund manager constantly works to ensure that the holdings in the fund reflect the changing market conditions accurately.
Conclusion
Hope you’ve gotten a good understanding of what hybrid funds are. If long-term wealth creation with a low amount of risk is what you’re after, then these types of funds may just be what you’re looking for. That said, if you wish to invest in mutual funds online, get in touch with Motilal Oswal right now to get up and running within no time.
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