A mutual fund is a professionally managed company that collects money from many investors and invests it in securities such as stocks, bonds and short-term debt, equity or bond funds and money market funds.
Mutual funds are a good investment for investors looking to diversify their portfolio. Instead of betting everything on one company or sector, a mutual fund invests in different stocks to try to minimize portfolio risk.
The term is typically used in the US, Canada and India, while similar structures around the world include the SICAV in Europe and the open-ended investment firm in the UK.
What is a hybrid fund?
Our choice of meals when we dine depends largely on the time on hand, the occasion and, of course, our mood. If we are in a hurry, for example during a lunch at the office or lunch before boarding a bus/train, we could opt for a combined meal. Or if we know that a combo meal is famous, we may not bother going through the menu. A pleasant meal would mean ordering individual items from the menu, as many as we would like.
Similarly, an investor in a mutual fund can individually select and invest in various schemes, e.g. equity fund, debt fund, gold fund, liquid fund, etc. At the same time, there are schemes such as a combined meal – known as hybrid schemes. These hybrid schemes, formerly known as balanced funds, invest in two or more asset classes so that the investor can avail the benefit of both. There are various types of hybrid funds in the Indian mutual fund industry. There are schemes that invest in two assets, namely equity and debt, or debt and gold. There are also schemes that invest in stocks, debt and gold. However, most popular hybrid schemes invest in stocks and debt assets.
Different types of hybrid funds follow different asset allocation strategies. Remember to have your goals clear before investing.
