Every individual needs to invest a certain portion of their monthly savings. If you inculcate the discipline of saving regularly you give yourself an opportunity to generate capital appreciation over the long term. The earlier you start saving and investing the better it is. When you have more years in hand to invest you have better chances of generating wealth. Financial planning helps investors to determine short-term and long-term financial goals. Investors should always remain there before investing. A risk appetite is nothing but the individual’s ability to take a certain amount of dress and invest in a particular financial scheme so that at some point of time in future so that they are able to generate capital appreciation out of these investments. Just like determining one’s risk appetite and financial goals is essential while making an investment decision, one should also understand and you should have a diversified investment portfolio. Especially if you are seeking capital appreciation over the long term through investment in markets link schemes like mutual funds.
Mutual funds are a pool of professionally managed funds that invest across multiple asset classes depending on the nature of the scheme and the risk profile that it carries.
Market regulator SEBI describes Mutual Funds as, “a mechanism for pooling the resources by issuing units to the investors and investing funds in securities in accordance with objectives as disclosed in the offer document.
Investments in securities are spread across a wide cross-section of industries and sectors and thus the risk is reduced. Diversification reduces the risk because all stocks may not move in the same direction in the same proportion at the same time. Mutual fund issues units to the investors in accordance with the quantum of money invested by them. Investors of mutual funds are known as unitholders.
The profits or losses are shared by the investors in proportion to their investments. The mutual funds normally come out with a number of schemes with different investment objectives which are launched from time to time. A mutual fund is required to be registered with Securities and Exchange Board of India (SEBI) which regulates securities markets before it can collect funds from the public.”
What are hybrid funds?
Mutual funds for the categories for investors to make informed investment decisions. Some of the major mutual fund categories including equity, debt, and solution oriented hybrid, index, gold, ETFs etc. Equity funds predominantly invest in equity related instruments. Debt funds invest in fixed income securities that generate regular income. Hybrid funds or balance funds are those mutual funds which invest both in fixed income securities as well as stocks and other equity related instruments.
Why should you add hybrid funds to your investment portfolio?
Hybrid funds diversify their assets based on the investment objective of the scheme. For example, a conservative hybrid fund is supposed to invest anywhere between 65 to 80% of its total assets in debt instruments where the remaining assets are allocated to equity and equality related instruments. On the other hand and aggressive hybrid fund will invest more in equity and the remaining in debt instruments. If you want to invest in mutual funds that invest in both asset classes and who have the potential to help you reach your ultimate financial goal investment objective synchronises with that of yours then you can consider investing in hybrid funds. Whether to invest in a hybrid fund that is more equity oriented and object oriented will totally depend on your income and what you wish to achieve in the long run. The equity part of the hybrid fund gives the scheme an opportunity to generate capital appreciation whereas the debt element provides the cushion when market volatility leads equity markets to underperform. If you wish to diversify your mutual fund portfolio by investing in funds that invest in both equity and debt instruments then you can consider investing in hybrid funds.