Are balanced funds and hybrid funds one and the same?

There are so many mutual fund categories that sometimes it might get a bit confusing while making an investment decision. This is why most mutual fund experts ask aspiring investors to first determine their financial goal. One single unit of a mutual fund is a combination of multiple stocks and other money market instruments. Mutual funds give investors an opportunity to invest in multiple markets which otherwise would not have been possible. Mutual funds are a pool of professionally managed funds that offer active risk management.

What fund houses do is that they collect money from investors sharing a common investment objective and invest this pool of funds across various asset classes. Depending on its scheme and nature a mutual fund may invest in equity, debt, corporate bonds, government securities, certificates of deposits, call money, etc. There are two ways to make an investment in mutual funds. Investors can make a one time lump sum investment in a mutual fund scheme. This is the traditional way to invest in mutual funds and investors are allotted units in large quantities in quantum with the investment amount. On the other hand, since you invest in one go, you are exposing your entire investment amount to the market’s volatile nature. The other way to invest in mutual funds is through a systematic investment plan. SIP is an easy and hassle free way to invest small fixed amounts at regular intervals till your investment objective is achieved. If you do not know how much you need to invest regularly to achieve your life’s monetary goals, you can use SIP return calculator which is easily available online. Not only will this calculator help you understand how much money you need to invest, it will also give you an estimate of your potential capital gains through these investments.

If you are someone who is seeking capital appreciation through long term investment in a market linked scheme and carry a moderately high risk appetite, then you can consider investing in hybrid mutual funds.

What are hybrid funds?

While equity mutual funds invest predominantly in stocks and equity related instruments and debt funds predominantly invest in fixed income securities that generate regular income, hybrid funds are a mutual fund product category that invest in both equity and debt related instruments. Since these two funds invest in two of the most popular asset classes, they are referred to as balanced funds. The equity element of a hybrid fund gives the portfolio an aggressive touch and an opportunity to seek capital appreciation while the debt element offers cushion when the markets become volatile.

Now whether a hybrid fund will invest more in equity or debt may totally depend on the nature of the scheme and its investment objective. For example, an aggressive hybrid fund carries a portfolio where it allocates a minimum of 65 to 80 percent of its total assets to equity related instruments. On the other hand, a conservative hybrid fund is more debt oriented. Hence this fund invests more in debt securities and the rest in equity.

Hybrid funds are being considered by several individuals especially because of the kind of a balanced portfolio that they carry. However, investors should remember that investments made in mutual funds do not guarantee any returns. This is why one should always determine their risk appetite before investing in any type of scheme. Also, investors are expected to do a little background check about the fund. Check the fund’s past performance, whether it is performing better than its peers. They also need to check if the fund’s expense ratio isn’t too high as it can affect their long term capital gains at the time of redemption. If they feel that they need further assistance in making an investment decision, they can always consult a financial advisor.