Hybrid Funds are a category of mutual funds that provide a combination of two or more investment asset class, for instance, bonds, stocks and cash. These are also known as asset allocation funds or balanced funds.
This type of a mutual fund consists of a mixture of different components that typically exist in two or more funds and are hence labeled as ‘hybrid’. Usually these are a combination of bonds and stocks and have a specific objective such as conservative, moderate or aggressive. Usually, a moderate allocation fund would generally have an asset allocation of 35% bonds and 65% stocks approximately. The asset allocation of hybrid funds can either change over a period of time i.e. the target date funds or can remain fixed i.e. the balanced funds.
The aim of investing in these funds is to gain regular payouts. There is an inverse relationship between the performance of hybrid funds and stock market. When the stock market experiences a rough time, these funds tend to do well because they have a cushion of debt. On the other hand, these funds may not do well when the stock market shows a rising trend.
But an investor’s choice should be based on the asset allocation strategy rather than the market conditions.
The asset allocation strategies may differ from one type of Hybrid Fund to another. It is hence very essential to carefully analyze everything before investing in Hybrid Funds.
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