Why do you need to have hybrid mutual funds in your portfolio?

The financial terrain can be both unpredictable and challenging and having a well-rounded investment portfolio is like having a diverse toolkit. Among the various investment options available, hybrid mutual funds can serve as a versatile and essential tool that every retail investor must consider. These funds combine the best of both i.e., blend the stability of debt instruments with the growth potential of equities. Covered here is the importance of hybrid funds along with the top reasons to consider adding them to your investment portfolio.

Why do hybrid funds matter?

Hybrid funds are designed to provide investors with a balanced investment approach. They aim to strike a balance between the low-risk nature of debt investments and the potential for wealth creation of equity investments.

Reasons to invest in hybrid funds

Here are the top reasons why including hybrid mutual funds in your portfolio can be a wise move.

  • Tax efficiency

For investors, tax implications can significantly impact returns. Hybrid funds offer tax advantages based on their equity-debt mix. For instance, long-term capital gains of up to Rs 1 lakh from equity-oriented hybrid funds are tax-free, making them an attractive option for tax-conscious investors.

  • Professional management

Managing a diversified portfolio can be complex. Hybrid funds are managed by professional fund managers who make investment decisions on your behalf. Their expertise and market insights help navigate volatile markets, potentially optimising returns.

  • Risk mitigation

Hybrid funds are especially beneficial in this regard as they spread investments across asset classes. The debt part provides income and stability while the equity part offers growth potential. This diversification assists in hedging risks in your portfolio.

  • Flexibility and liquidity

Unlike many conventional investment options, hybrid mutual funds provide flexibility and liquidity. You can purchase or liquidate units at Net Asset Value (NAV) prices, providing easy access to your funds. This liquidity ensures you can respond to your changing goals or unanticipated expenditures without significant constraints.

  • Customised to your risk appetite

Hybrid mutual funds come in distinct categories to meet distinct risk appetites. Aggressive hybrid mutual funds have a higher allocation to equities, which makes them suitable for retail investors seeking capital appreciation. In contrast, conservative hybrid mutual funds have a higher allocation towards debt, making them a stable option for income-focused retail investors. So, you can select the categories that are in line with your financial goals and risk appetite.

Ending note

While there are several benefits of hybrid funds, they must be viewed as one part of a holistic investment strategy instead of the sole solution. By investing a portion of your investment in hybrid mutual funds, you can make the most out of the advantages of diversification, professional management, and risk mitigation.

When zeroing in on any hybrid fund scheme, ensure to align your investment with your investment horizon, risk appetite, and financial goals. In case of any confusion, you can consider approaching a certified financial advisor. A financial advisor can provide customised guidance and assist you in striking the correct balance between hybrid mutual fund investing and other financial instruments, whether market-linked or traditional to form an effective and robust portfolio tailored to meet your unique requirements.

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