Mainly 3 types of investors in Mutual Funds. The first ones are the adventurous ones. They take big risks and choose Best Equity Mutual Funds for their investments. Next, are those who prefer to play it safe. They stick to Best Debt Funds that assures some returns while keeping the money safe. Lastly, there is the third kind who wants the best of both worlds. They invest in Best Hybrid Funds.
We all want to earn healthy returns from our Mutual Funds Investments. We also want our money to be safe.
When we want to invest in Mutual Funds, we have to make a compromise between the Returns and the Safety. And invest in either equity funds(better returns) or debt funds (relatively safer), as per the compromise.
But what if we could invest in a mix of both?
Here’s where Best Hybrid Funds come to the picture. Hybrid Funds are like Balanced Mutual Funds that are designed to invest in both equity and debt.
5 Best Hybrid Funds
Here is a list of the 5 Best Hybrid Funds in India, with an overview of their performance:
|Fund Name||Category||Risk||1-Yr Annualized Returns||3-Yr Annualized Returns||5-Yr Annualized Returns||Expense Ratio||Turnover Ratio|
|SBI Equity Hybrid Fund – Direct – Growth||Aggressive Hybrid||Moderate-High||11.85%||12.31%||13.26%||1.08%||252%|
|Reliance Equity Hybrid Mutual Fund – Direct – Growth||Aggressive Hybrid||Moderate-High||2.97%||10.4%||11.15%||1.11%||136%|
|Aditya Birla SL Balanced 95 Fund||Aggressive Hybrid||Moderate-High||4.41%||9.29%||11.22%||1.03%||29%|
|Aditya Birla SL Corporate Bond Fund||Corporate Bond-Debt||Moderate-Low||9.88%||8.16%||8.74%||0.27%||N.A.|
|Franklin India Ultra-Short Bond Fund – Super Institutional Plan – Direct Plan||Ultra Short Duration- Debt||Moderate||9.7%||8.97%||9.28%||0.44%||N.A.|
Equity Oriented Hybrid Funds
SBI Equity Hybrid Fund – Direct – Growth
SBI Equity Hybrid Mutual Funds got launched on December 31st, 1995 by SBIMF. This Mutual Fund has an expense ratio of 1.25, considered relatively low as per the category. The returns since its launch are 16.39%.
|AUM||Rs. 27,082 Cr|
|Minimum SIP||Rs. 500|
|Top Portfolio Holdings||CBLO(CCIL), HDFC Bank Ltd. State Bank of India, Kotak Mahindra Bank Ltd, Infosys Ltd|
Reliance Equity Hybrid Mutual Fund – Direct – Growth
Reliance Equity Hybrid Mutual Funds got launched in June 2005, by Reliance Mutual Fund. It has been a consistent based on Mutual Funds Performance. The Fund has given brilliant returns since the launch of 13.97%.
|AUM||Rs. 13,039 Cr|
|Minimum SIP||Rs. 500|
|Top Portfolio Holdings||HDFC Bank Ltd, Grasim Industries Ltd, Yes Bank Ltd, Morgan Credits Pvt.Ltd, Infosys Ltd|
Aditya Birla Sun Life Balanced 95 Fund
This fund was launched on February 10, 1995. This 5-star Mutual Fund from the House of Aditya Birla Mutual Fund has had a decent static. The Returns it has given are a good 9.17% since its launch.
|AUM||Rs. 13,516 Cr|
|Minimum SIP||Rs. 500|
|Top Portfolio Holdings||HDFC Bank Ltd, ICICI Bank Ltd, Infosys Ltd, Yes Bank Ltd, State Bank of India|
Debt-Oriented Hybrid Funds
Aditya Birla Sun Life Corporate Fund – Direct-Growth
This fund was launched on March 3rd, 1997. It has been rated as a 5-star fund by most rating agencies, including CRISIL. Not the only reason being that this fund has given a return of 8.67% since launch.
|AUM||Rs. 19,445 Cr|
|Minimum SIP||Rs. 1,000|
|Top Portfolio Holdings||ONGC, Petro Additions, Jio Infocomm Ltd., and Housing Development Finance Corporation|
Franklin India Ultra-Short Bond Fund – Super Institutional Plan – Direct Plan
This fund was launched on 18th December 2007. This fund has given a return of 8.93% since then. that is how it has been given a 5-star rating by most rating agencies.
|AUM||Rs. 14,643 Cr|
|Minimum SIP||Rs. 1,000|
|Top Portfolio Holdings||Renew Power Ventures Pvt. Ltd., Vodafone Idea Ltd., Adani Infra (India) Ltd, Aditya Birla Retail Ltd|
Benefits of Best Hybrid Funds
Hybrid Funds are those Mutual Funds that enjoy the flexibility to invest in both equities as well as debt securities simultaneously. As such, the mutual fund portfolio enjoys the potential of higher returns during the long term with its equity component and may also resist the high volatility through the debt portion. Moreover, the benefits of mutual funds include having a variety of schemes under the broad category of hybrid funds itself, to suit the investors have different risk profiles. On one side conservative investors may select hybrid funds with higher debt component. While the investors having an aggressive risk profile and higher risk appetite may go for hybrid funds with a higher equity portfolio.
A Hybrid fund offers investors the benefit of diversification because it combines both equity and debt. When the stock market goes down, the debt component in these types of mutual funds ensures stability. So these funds can withstand shocks during a bear phase. Generally, debt and equity are inversely proportionate, they move in opposite directions. So by investing in a Hybrid fund helps you hedge your bets. One thing you must remember is that such Balanced Mutual Funds do not do as well when the market is on a bull run. Another point to note is that when share prices rise, fund managers will have to sell stocks of the hybrid mutual funds to maintain the required equity-debt ratio.
Balance risk and return
One of the biggest advantages of a hybrid fund is that it allows you to balance risk and return. The equity portion will earn higher returns, and the debt part will earn steady returns at a lower risk. You can also choose the mix of equity and debt as per your needs. For example, an aggressive Balanced Fund will invest, say, over 75% in equities and the balance in debt. A conservative fund may invest less than 50% in equity.
Systematic investment plan (SIP)
Another benefit of a hybrid fund is that they let you invest via SIP mode. Best SIP lets you invest depending on how much you can save. Is there any benefit of investing small sums over a period of time? Some feel that it doesn’t matter whether you make a lump sum investment or in installments because you are investing mainly in debt. But it does matter. Especially if the hybrid funds have a higher component of equity. Because there is the risk of entering the stock market when prices are high. In hybrid funds that have a higher component of equity, it’s better to invest via the SIP route since you enjoy the benefit of rupee cost averaging.
Equity funds are subject to the fluctuations of the market. In a volatile market, investors could panic and opt for redemptions. The debt component brings in a kind of stability to hybrid mutual funds, and fund managers can handle redemptions better, ensuring stable returns to investors.
Under certain conditions, hybrid funds have outperformed equity funds. Returns from hybrid funds over the past few years have been more than large-cap mutual funds. This is particularly true in a volatile market.
As most balanced funds have a fixed proportion to be invested into stocks and bonds, and fund managers tend to place their bets on large-cap stocks, there is very little necessity for active portfolio management. Therefore the expense ratios will be on the lower side for hybrid funds.
Suited for beginners
Hybrid funds are especially suited for first-time investors. They get a balanced exposure to equity.
Disadvantages of Hybrid Mutual Funds
Difficult to compare
One problem with hybrid funds that it is difficult to compare their returns. In the equity funds, for example, you can compare the performance of your fund to their stock market index like the Sensex, or specific indices like large-cap, mid-cap, and small-cap. We can’t do this with a hybrid fund. The only comparison that we can make is with hybrid mutual funds falling in the same category.
The conception that hybrid funds are risk-free, is not exactly true. There are two sets of risk involved in a balanced or hybrid mutual fund – fluctuations in interest rates and stock prices. If interest rates fall, NAVs will drop. Balanced Mutual Funds are also exposed to stock price risk. When their prices rise, NAVs will fall, according to the proportion of equity in the fund.
Lack of focus
Managing both debt and equity together needs different skill sets. The Fund Managers of hybrid funds may not have enough expertise in both fields. This will result in sub-optimal returns for investors. You need to check the fund manager’s expertise and the track record of the hybrid mutual funds before investing in their fund.
Less option for change
Balanced funds may not be ideal to achieve changing investment goals. For instance, if you want to reduce your exposure to equity, you will not have that choice with a hybrid mutual fund.
How Hybrid Funds are Taxed
Equity-oriented funds, with more than 65% in equities, have the same tax treatment as equity mutual funds. If you hold them for less than 12 months, you need to pay a 15% capital gains tax. Hybrid funds of this type held for more than a year are eligible for long-term capital gains (LTCG) tax at 10%. Hybrid mutual funds with significant investment in fixed income instruments are treated as Debt Mutual Funds. Investors are liable for the LTCG tax of 20% with indexation if they hold them for three years and above. Any short-term gain gets added to your income and is taxed as per the applicable tax slab. Indexation reduces the amount you have to pay as tax, giving a benefit.
Also read Liquid Fund Taxation
Things to Remember
The best way to follow the performance of hybrid mutual funds is by checking their returns over the past several years. Select a balanced fund that has performed consistently in bull and bear phases.
Balanced Mutual funds invest in a mix of equity and debt in varying proportions. If you can bear a higher level of risk, you should choose the hybrid funds that have an equity component of 85%. If you prefer moderate risk, the fund with an equity component of 60% should work for you. There are also plans of hybrid mutual funds that cater to low-risk investors, having an equity component of 15-25%.
The expense ratio is the amount charged by the mutual fund houses to manage your investment. Tru to make sure the expense ratio of the plan you chose is low. Higher expense ratios will reduce your returns.
You have to hold hybrid funds for at least 5-years before you can realize the full benefit of these kinds of mutual funds.
If you are new to the world of Mutual Funds Investments, it is advisable to take the advice of experts with a solid background and research experience. It is advisable to take the assistance of WealthBucket at the beginning of your journey to wealth creation.
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