A hybrid fund is an investment fund that is characterized by diversification among two or more asset classes. These funds typically invest in a mix of stocks and bonds.
Hybrid funds are considered a safer bet than equity funds. These provide higher returns than genuine debt funds and are popular among conservative investors. Budding investors who are willing to get exposure to equity markets may invest in hybrid funds.
1. Equity-oriented hybrid funds:
If the fund manager invests more than 65% of the fund’s assets in equity and the rest in debt and money market instruments, then it’s called an equity-oriented fund.
2. Debt-oriented balanced funds:
A hybrid fund is termed as a debt-oriented fund if the fund manager allocates more than 65% towards debt instruments. The debt component of the fund constitutes the investment in fixed-income products such as government securities, debentures, bonds, treasury bills etc.
3. Monthly Income Plans:
These are hybrid funds that invest predominantly in debt instruments. A monthly income plan (MIP) would generally have 15-20% exposure to equities. This would allow it to generate higher returns than regular debt funds. MIPs provide regular income to the investor in the form of dividends.
MIPs also come with the growth option – they let the investments grow in the fund’s corpus. Investors can withdraw amounts as they desire from these Funds.