Should you invest in hybrid mutual funds?

What are hybrid mutual funds?
Funds which offer a combination of both debt as well as equity. As per SEBI (Securities and Exchange Board of India) there are 6 types of hybrid funds viz. Conservative hybrid fund, balanced hybrid fund, aggressive hybrid fund, dynamic asset allocation or balanced advantage, multi-asset allocation, arbitrage funds and equity savings fund. AMCs (Asset Management Companies) can either have balanced hybrid fund or aggressive hybrid fund and in case of multi-asset allocation foreign assets cannot be treated as a separate asset class. Let’s understand in brief all these types of funds falling under hybrid MF category.
 
Conservative hybrid funds are funds that can invest between 10 per cent to 25 per cent of their assets in equity and equity-related instruments and between 75 per cent to 90 per cent of the assets in debt instruments.
 
Balanced hybrid funds are funds that can invest between 40 per cent to 60 per cent of the assets in equity and equity-related instruments and between 40 per cent to 60 per cent of the assets in debt instruments.
 
Aggressive hybrid funds are funds that can invest between 65 per cent to 80 per cent of the assets in equity and equity-related instruments and between 20 per cent to 35 per cent of the assets in debt instruments.
 
Dynamic asset allocation or balanced advantage are funds that can invest in equity and debt that are managed dynamically. Multi-asset allocations are funds that can invest assets in at least three asset classes with a minimum allocation of 10 per cent to each of the three asset classes.
 
Arbitrage funds are funds that follow arbitrage strategy and have minimum 65 per cent of the assets invested in equity and equity-related instruments. Equity savings funds are funds that have a minimum 65 per cent of the assets invested in equity and equity-related instruments and minimum 10 per cent in debt instruments. Equity savings funds have to state hedged and unhedged in its SID (Scheme Information Document) even the asset allocation under defensive considerations may also be stated in the offer document.
 
Now after understanding all the types of funds in the hybrid category, the question is should you invest in them? To answer these questions let’s re-frame the question itself. Who should invest in hybrid category MFs? So the answer to this is those who are new to mutual funds and wish to invest just to get experience with mutual funds can invest in them. Even those who wish to get the advantage of both the worlds (equity and debt) without having to manage it individually may also opt to invest in hybrid funds. Hybrid funds should form a part of your portfolio if you are a conservative or moderately conservative risk taker. It is advisable for an aggressive investor or the most experienced investor to manage debt and equity separately to get the most out of it.