Hybrid funds hold a portfolio of equity and debt securities. The investment objective of the fund will determine the allocation of the portfolio between the two asset classes. A hybrid fund is a debt and an equity fund, rolled into one. The risk in a hybrid fund will primarily depend upon the allocation between equity and debt, and the relative performance of these asset classes. The higher the equity COMPONENT in the portfolio, the greater will be the overall risk.

Equity-Oriented Hybrid Funds : Equity-oriented hybrid funds have a greater exposure to equity in their portfolio as compared to debt. Balanced funds are an example of equity-oriented funds. The coupon income from the debt portion will stabilize the risky returns from the equity component. However the higher equity component in the portfolio means the fund’s overall returns will depend on the performance of the equity MARKETS and will also fluctuate more.

Debt-Oriented Hybrid Funds : Debt-oriented hybrid funds have a higher proportion of their portfolio allotted to debt. Monthly Income PLANS are such funds. The returns are primarily from the debt portion and will depend upon the type debt securities held: short or long term, low or high credit risk. The equity portion augments the return from debt so that the fund is able to GENERATE better returns than a pure debt fund.

Asset Allocation Funds : These funds invest in both equity and debt but without a pre-specified allocation as in the case of other hybrid funds. The fund manager takes a view on which type of investment is expected to do well and will tilt the allocation towards either asset class. Such funds may also hold 100% in equity or debt. Examples of asset allocation fund include LIFE stage funds that invest across asset classes suitable to the age of the investor. Such funds will have a higher allocation to equity in the initial years and reduce equity exposure and increase debt exposure as the age advances.

Hybrid funds hold a portfolio of equity and debt securities. The investment objective of the fund will determine the allocation of the portfolio between the two asset classes. A hybrid fund is a debt and an equity fund, rolled into one. The risk in a hybrid fund will primarily depend upon the allocation between equity and debt, and the relative performance of these asset classes. The higher the equity component in the portfolio, the greater will be the overall risk.

Equity-Oriented Hybrid Funds : Equity-oriented hybrid funds have a greater exposure to equity in their portfolio as compared to debt. Balanced funds are an example of equity-oriented funds. The coupon income from the debt portion will stabilize the risky returns from the equity component. However the higher equity component in the portfolio means the fund’s overall returns will depend on the performance of the equity markets and will also fluctuate more.

Debt-Oriented Hybrid Funds : Debt-oriented hybrid funds have a higher proportion of their portfolio allotted to debt. Monthly Income Plans are such funds. The returns are primarily from the debt portion and will depend upon the type debt securities held: short or long term, low or high credit risk. The equity portion augments the return from debt so that the fund is able to generate better returns than a pure debt fund.

Asset Allocation Funds : These funds invest in both equity and debt but without a pre-specified allocation as in the case of other hybrid funds. The fund manager takes a view on which type of investment is expected to do well and will tilt the allocation towards either asset class. Such funds may also hold 100% in equity or debt. Examples of asset allocation fund include life stage funds that invest across asset classes suitable to the age of the investor. Such funds will have a higher allocation to equity in the initial years and reduce equity exposure and increase debt exposure as the age advances.