Debt funds are widely known for their relatively higher stability than equities among all investors. These funds are considered as highly trusted securities as these funds invest in fixed-income securities such as treasury bills, government securities, bonds, debentures, etc. Hence these mutual funds are considered to be more stable than equity funds. Equity funds tend to be highly affected the fluctuations in the market.
Although, you must not forget that volatility is the part and parcel of investing in the stock markets. This volatility is what helps equity mutual funds to earn significantly higher returns. However, in the short-run, this same volatility might work against equities, making them a riskier investment avenues than debt funds. Debt funds hardly face any fluctuations. So, in case of debt funds, if there is a downfall in the markets, the mutual fund investments will take a longer time to recover, as it will take time for the markets to come up. These funds also make predictable returns with little to no chance of lower or higher returns. Equity funds, on the other hand, produce very unpredictable returns in the short run.
So, where should one invest if they prefer stability along with the benefits of equity funds. Enter hybrid mutual funds. There are three types of hybrid funds catering to various needs of investments. There is equity-oriented hybrid funds meant for aggressive investors, debt-oriented hybrid funds idle for conservative investors, and balanced funds for investors who do not identify themselves as aggressive or conservative. Hybrid funds aim to offer the best of both worlds. So how should one choose a mutual fund?
If you are looking for stable returns with the probability of slightly higher returns than debt funds, then you might consider investing in debt-oriented hybrid mutual funds. Debt-oriented hybrid funds are mandated to invest a minimum of 65% of their assets in debt funds and the remaining in equity and equity-related securities. With majority of the fund invested in debt securities, these funds offer the much-needed stability. The equity segment works to create higher potential for better returns.
If you are looking for substantially higher returns with slightly higher stability than pure equity funds, you might consider investing in equity-oriented hybrid funds. Equity-oriented hybrid mutual funds are assigned to invest at least 65% of their investible corpus in equity and equity-related securities and the remaining in debt securities. The majority of the fund is invested in equity segment that works to provide substantially higher returns while the debt segment acts like a hedge and provides stability to the mutual fund investment.
Investing in mutual funds is quite an easy process. With so many types of mutual funds available to an investor, choose a mutual fund that best aligns with your investment portfolio. So, what are you waiting for? Analyse the numerous investment options available to you and invest in mutual funds to attain your financial goals. Happy investing!