HYBRID

FUNDS
 CONTENT
01 TYPES OF INVESTMENT

02 HOW DOES IT WORK

03 TYPES OF HYBRID FUND

04 HOW TO CHOSE RIGHT HYBRID FUND

05 BENEFITS OF HYBRID FUND

06 CONCLUSION
 INVESTMENT CAN BE CLASSIFIED INTO
THREE TYPES BASED ON RISK
EQUITY DEBT HYBRID
Equities are generally The returns are usually not affected by Hybrid funds are a
considered the riskiest fluctuations in the market. Therefore, debt combination of equity
class of assets. securities are considered to be low-risk and debt investments
Dividends aside, they investment options. which are designed to
offer no guarantees, and meet the investment
investors' money is objective of the scheme.
subject to the Each hybrid fund has a
successes and failures different combination of
of private businesses in equity and debt targeted
a fiercely competitive at different types of
marketplace investors.

 HOW DOES A HYBRID

FUND WORK?
Hybrid funds are having 2 major goals:
1. Capital Appreciation in the long term – By investing in equity you can
get capital appreciation
2. More/higher returns in short term- By investing in debt instruments,
you can get stable returns.
Hybrid fund managers keep the above-mentioned goals in mind while
allocating the assets. They analyze the market to make sure that returns
and capital appreciation are in place.
The fund manager creates a portfolio according to the investment
objective of the scheme and allocates the funds in equity and debt
instruments in varying proportions. Further, the fund manager also
buys or sells assets if the market movements are favorable.
TYPES OF
HYBRID FUNDS
Aggressive Hybrid Fund

are open ended hybrid schemes investing predominantly in
Aggressive hybrid funds
equity and equity related instruments which invest between 65% and 80% of its
assets in equity and the rest in debt and money market instruments. These funds
have the potential to generate relatively better returns due to higher exposure to
equity and equity-related instruments than conservative hybrid funds but are more
riskier than them.

Conservative Hybrid Fund

are open ended hybrid schemes investing predominantly
Conservative hybrid funds
in debt instruments which invest between 75% and 90% of its assets in fixed income
generating securities such as Commercial Papers(CPs), Certificate of Deposit(CD), T-
bills, corporate bonds and other money market instruments. The rest is invested in
equity and equity related instruments. These funds are less volatile than an
aggressive hybrid fund and are suitable for risk averse investors
Dynamic Asset Allocation Fund

Dynamic asset allocation fund dynamically invests in both equity and debt depending on the
current market conditions based on an internal investment model. This fund is suitable for
investors looking for better risk adjusted returns over long term irrespective of market conditions.

Multi Asset Allocation Fund

Multi Asset Allocation Fund invests a minimum of 10% of its portfolio in at least 3 asset classes
and increase/decrease its allocation according to the current market condition. These funds
typically invest in equity, debt and gold related instruments including ETF and such other asset
classes as SEBI may prescribe from time to time.

Arbitrage Fund
Arbitrage
funds work by profiting from the difference in price between 2 markets usually the
cash market and the futures market. These funds purchase stocks in the cash market and
simultaneously sell it in the futures market. Arbitrage Funds have a minimum of 65% of gross
exposure to equity and the rest in debt and money market instruments which is done on a
tactical basis.

Equity Savings Fund

fund invests in equity, debt and arbitrage opportunities in the cash and derivative
Equity savings
segment of the equity market. This fund aims to generate income by investing in arbitrage
opportunities with considerable exposure towards equity and can help in long term wealth
generation.
 HOW TO CHOOSE THE
RIGHT HYBRID FUND
BASED ON YOUR
INVESTMENT HORIZON

 LOSSES AND
VOLATILITY
What's key here is risk containment. That
can be measured by the occurrences of
losses, the depth of such losses, and how
volatile returns can beAs you can see,
arbitrage funds are the best at keeping
losses in check. The category that slips
the most during corrections is the
aggressive hybrid category. Stretching
this period farther back to five years also
sees hybrid aggressive funds fare
similarly; the category’s worst average
one-year performance was a 22.6 percent
loss.
In their derivative calls, funds primarily take the opposite position in
the futures market on the stocks in their portfolio (they also take
other mispricing opportunities, all collectively termed as arbitrage). PORTFOLIOS
This serves to negate equity risk; the more a fund takes these
derivative calls, the less equity it has that’s left open to market AND RISKS
movements. It’s this open or unhedged equity that influences losses,
volatility as well as returns.

Arbitrage funds hedge the entire equity

exposure, which makes them the lowest
risk hybrid funds. And therefore, they do
not show loss instances beyond any one-
month period. Aggressive hybrid funds
don’t hedge at all, except in rare cases.
 PERFORMANCE ACROSS TIME-
FRAMES
In categories such as arbitrage or even
equity savings, returns will be similar
whether long-term or short. Arbitrage funds
are very similar to liquid funds in terms of
return; they do not gain from equity market
movement. Equity savings funds have low
equity allocations, which caps how much
returns can rise even in prolonged market
rallies.
The table below shows the average returns
for one-year, two-year and three-year
periods for each category based on rolling
returns.
 BENEFITS OF INVESTING IN
HYBRID FUNDS BENEFITS OF
DIFFERENT ASSET
DIVERSIFICATION CONVENIENCE CLASSES
Hybrid funds offer the These funds have the
Hybrid funds invest in
investor the benefit of potential to generate long
multiple asset classes
diversification as it invests term capital appreciation
giving investors exposure
in a portfolio consisting of by investing in equity, the
to equity, debt, gold
multiple asset classes. This stability and lower
related instruments
can help lower risk as the volatility of debt funds, the
(including ETF) and other
performance of one asset perceived safe haven
asset classes (as
class is balanced by the nature of gold and the high
permissible) depending on
performance of another liquidity offered by cash
the type of fund and its
asset class thus stabilising depending on the type of
investment objective
returns. fund.
CONCLUSION
Hybrid mutual funds are suited for different
variety of investors having different investment
and risk profiles. There are equity-oriented
schemes for the risk-takers and debt-oriented
schemes for the risk-averse investors. Hybrid
funds offer varying levels of risk tolerance ranging
from conservative to moderate to aggressive.
People who have retired can also choose hybrid
funds to manage their expenses by adopting a
conservative strategy. These could also be a
good base for new entrants given their balanced
structure. So, we can safely say that hybrid
mutual funds cater to everyone’s financial goals.

THANK YOU!