Hybrid Mutual Funds - Decoded
SEBI’s recent recategorization move has resulted in the creation of 36 “categories” of Mutual Funds, each with iron-tight definitions that are impossible to manipulate. In the long run, this stands to benefit investors as they will know exactly what they’re getting into while investing their hard-earned money! Here are the 6 sub-categories of “Hybrid” Mutual Funds, along with a short note on who exactly this category of Mutual Fund is “Sahi” for!
Conservative Hybrid Fund
SEBI’s Definition: Investment in equity & equity related instruments- between 10% and 25% of total assets; Investment in Debt instruments- between 75% and 90% of total assets
Suitable for: retirees whose primary intent is to safeguard their capital. SWP’s can be used to generate income from these funds, as they will be relatively stable.
Balanced Hybrid Fund
SEBI’s Definition: Equity & Equity related instruments- between 40% and 60% of total assets. Debt instruments- between 40% and 60% of total assets. No-Arbitrage would be permitted in this scheme.
Suitable for: Moderate risk-taking individuals with medium-term wealth creation goals that are 3-4 years away.
Aggressive Hybrid Fund
SEBI’s Definition: Equity & Equity related instruments- between 65% and 80% of total assets; Debt instruments between 20% 35% of total assets
Suitable for: High risk takers with 4-6-year time horizons, and with a clear understanding of the risks associated with equity markets
Dynamic Asset Allocation or Balanced Advantage
SEBI’s Definition: Investment in equity/ debt that is managed dynamically
Suitable for: Moderate risk takers who aren’t comfortable with a whole lot of volatility, and are looking to achieve tax-efficient returns that are 3-4% higher than FD’s in the long run
Multi Asset Allocation
SEBI’s Definition: Invests in at least three asset classes with a minimum allocation of at least 10% each in all three asset classes
Suitable for: Savvier investors who understand the dynamics of multiple asset classes and how they interact with each other
SEBI’s Definition: Minimum investment in equity & equity related instruments- 65% of total assets and minimum investment in debt- 10% of total assets Minimum hedged & unhedged to be stated in the SID.
Suitable for: Low to Moderate risk takers with a ~2-year time horizon, looking to achieve tax-efficient returns that are slightly higher than FD’s.