Mutual funds: In January 2024, investments in hybrid mutual fund schemes totaled ₹20,637 crore, marking a 37 percent increase from December 2023. Palka Arora Chopra, Personal Finance Experts suggests that a strategic approach to incorporating hybrid mutual funds in a balanced portfolio revolves around diversification across asset classes.
“Allocate a portion to equity-oriented hybrids for growth potential and debt-oriented hybrids for stability. These funds protect against risk by combining the higher returns of equities with the risk-averse characteristics of debt, resulting in lower volatility than investing only in stocks,” said Palka Arora Chopra
Hybrid funds artfully blend equity and debt, allowing investors to reap the dual benefits of growth and stability in one basket.
“The key is allocating a higher ratio to equity when markets are bullish while increasing debt allocation during volatility. This dynamic rebalancing helps participate in upside potential during market rallies while minimizing losses when headwinds strike,” said Ashish Aggarwal, Director, of Acube Ventures.
“The correlation between stocks and bonds is low, so hybrid funds tend to do well when pure stock funds struggle in bear markets. Stocks and debt instruments usually move in opposite directions. This is because when the stock market goes up, investors move money from debt into stocks, which increases the value of the stocks. Conversely, during periods of volatility in stock markets, investors turn to debt to protect their capital while generating stable income,” said Palka Arora Chopra
Ideally, maintain a 60:40 allocation ratio for an optimal risk-return profile. Additionally, diversify across categories – conservative, balanced, and aggressive hybrids – to multiply growth engines within the fund while mitigating concentration risk. Use systematic transfer plans to steadily invest in dips, suggested Ashish Aggarwal.
With prudent selection and tactical asset allocation, hybrid funds enable investors to sail market cycles on a balanced portfolio smoothly, he added.
Investors should choose appropriate funds and regularly review and rebalance to maintain the desired asset allocation based on risk tolerance and investment goals.
