Investing in mutual funds is a great way to diversify your portfolio and enjoy good returns on your investment. Mutual funds are investment vehicles that pool money from individual investors and invest in various securities such as stocks, bonds, and other money market instruments. Professional fund managers manage these funds and they have the expertise and knowledge to make informed investment decisions.
Hybrid mutual funds, also known as balanced mutual funds, are a type of mutual fund that invests in both equity and debt securities. These funds offer a balanced portfolio of both stocks and bonds, which makes them a suitable investment option for investors who are risk-averse but still want to enjoy the benefits of equity market returns.
Here are some of the untold benefits of investing in hybrid mutual funds:
Investing in hybrid mutual funds allows you to diversify your portfolio across multiple asset classes. By investing in both equity and debt securities, you can spread your risk over different market segments and reduce the impact of volatility on your investment portfolio. In other words, if the equity market is down, the debt securities in your portfolio can help to balance the losses.
2. Optimal asset allocation:
Hybrid mutual funds follow an optimal asset allocation strategy that balances the investment between equity and debt securities. You can invest the equity portion of the portfolio in stocks of high-quality companies, which have the potential to deliver good returns over the long term. You can invest the debt portion of the portfolio in fixed-income securities such as bonds, which provide a stable income stream and help to mitigate risk.
3. Professional fund management:
Hybrid mutual funds are managed by professional fund managers who have the necessary expertise and knowledge to make informed investment decisions. These managers constantly monitor the performance of the portfolio and make changes to the asset allocation and holdings as required to ensure optimal returns for investors.
4. Lower risk:
Investing in hybrid mutual funds can be less risky than investing directly in equities. This is because the fund manager invests across multiple stocks and sectors, which helps to mitigate the risk of individual stocks or sectors underperforming.
5. Tax benefits:
Hybrid mutual funds also offer tax benefits to investors. Long-term capital gains from mutual funds are tax-exempt up to INR 1 lakh per year. This means that any gains you make on your investments in hybrid mutual funds up to INR 1 lakh in a financial year are tax-free. It is like tax-saving mutual funds.
Investing in hybrid mutual funds is also convenient for investors. You can invest in these funds online, through a mutual fund distributor, or with the help of a financial advisor. You can also easily switch between different mutual fund schemes if required.
Benefits of Investing in Hybrid Mutual Funds
To understand the benefits of investing in hybrid mutual funds, let us take an example. Suppose you invest INR 10,000 each in 2 different mutual funds, one that invests only in equities and another that invests in both equity and debt securities. Over a period of 10 years, the equity mutual fund generates a return of 10% per annum, while the hybrid mutual fund generates a return of 8% per annum.
At the end of 10 years, the value of your investment in the equity mutual fund will be INR 25,937, while the value of your investment in the hybrid mutual fund will be INR 25,994. Although the return generated by the hybrid mutual fund is lower, the effect of diversification and risk mitigation cannot be ignored. Additionally, the tax benefits of investing in mutual funds will also need to be accounted for.
In conclusion, investing in hybrid mutual funds is a great way to diversify your portfolio and enjoy good returns on your investment. These funds offer a balanced portfolio of both stocks and bonds, which makes them a suitable investment option for investors who are risk-averse but still want to enjoy the benefits of equity market returns. However, it is important to note that investing in the Indian financial markets carries a certain level of risk. As an investor, it is important to gauge all the pros and cons of trading in the Indian financial market before making any investment decision.
The views and opinions expressed in this article are those of the author and do not reflect the official position of any agency, organization, company, or individual. The information provided herein is for informational purposes only and should not be relied upon as investment advice, financial advice, or tax advice. Please consult your financial advisor for any investment or tax-related queries.