If you want to ace capital market investments, it is essential to diversify your investment across asset classes like securities, bonds, and other money market instruments. Diversification reduces the risk associated with high-risk investment instruments like equity stocks and lets you earn decent returns. Hybrid funds provide you with the perfect gateway to benefit from diversification. These funds invest some amount in equity stocks and some in various secondary or money market instruments, minimizing risks while maximizing returns.
Hybrid funds are generally of two types - equity hybrid funds and debt hybrid funds. Equity hybrid or hybrid equity funds invest 65% or more in equity stocks and the remaining in debt instruments like bonds, government securities, and money market instruments. In contrast, debt hybrid funds invest 65% or more in debt instruments and the remaining in equity. Equity hybrid funds generally fetch higher returns than debt hybrid funds and are naturally more preferred by investors.
Here are the top benefits of investing in hybrid equity funds:
- The Right Mix of Risk and Return
Rarely does a financial instrument provide you with the right balance of risk and return. Equity hybrid funds are clearly an exception in this regard. The exposure to equity stocks ensures higher opportunities to make money, whereas the debt component ensures steady returns without considerable risks. So, a hybrid fund saves you from the hassles of guessing market conditions as the fund automatically divides your money between two types of financial instruments.
- Portfolio Diversification
Diversification is an art not many can master. Equity hybrid funds offer you a convenient way to benefit from diversification. Since debt instruments are generally more stable than equity, your returns do not nosedive when the equity market tumbles. Conversely, adequate exposure to equity ensures that your investment grows steadily when the market conditions are ripe. However, it is wise to know that hybrid equity funds typically offer lower returns than pure equity funds during a bull run because of the debt component. Similarly, your returns will not decrease as much as a pure equity fund during the bear phase.
- In-depth Learning
A first-time investor often does not understand how to tackle volatility to profit from the capital market. Hybrid equity funds provide them with the perfect gateway to understand the ins and outs of the capital market and profit sensibly. As a fact, the more you involve yourself in understanding the nitty-gritty of the fund, the better you recognize the volatility that runs the market and drives returns.
- Systematic Investment
Do not worry if you don't have the capital required to buy hybrid equity fund units. You can also open an equity hybrid fund account with a paltry sum of INR 500. For this, you need to open a Systematic Investment Plan (SIP) account. A SIP account lets you invest the same amount every month to create a sizeable corpus. SIP accounts are beneficial for two reasons - affordable investment amount, and you get more units when the market is down and vice versa.
- Lower Expense Ratio Than Pure Equity Funds
A quick scan of the top hybrid equity funds will show that such funds' expense ratio or account management fee charges are typically lower than most pure equity funds. Generally, hybrid equity funds invest a fixed proportion in large-cap stocks and the remaining in high-quality debt instruments. Hence, there is little need for active monitoring. And, since the fund manager does not need to monitor the fund as aggressively as pure equity funds, they often charge less. This plays a crucial role in maximizing your profits.
Invest in Hybrid Equity Funds to Beat Volatility Like a Pro
Now that you know the top five reasons you must invest in hybrid equity funds, find the best equity hybrid fund to scale up your investment. Equity hybrid funds allow you to beat volatility, earn decent returns, supports learning, and invest systematically. Invest now and play a part in India's growth story.
