Why are debt hybrid mutual funds considered as a great investment option

Investing in mutual funds is a great way to diversify your portfolio and gain exposure to various asset classes. Depending on your financial goals, you can choose from different types of mutual funds and invest accordingly. Debt and equity mutual funds are two popular options, but if you are looking to invest in both, hybrid mutual funds may offer such an opportunity.

Hybrid mutual funds can be tailored to meet your specific risk appetite; if you are looking for higher returns with greater levels of risk, you may prefer aggressive hybrid funds. And if you are a more conservative investor who values stability and predictable returns, you may benefit from a debt hybrid mutual fund. 

A debt hybrid fund has the majority of its assets allocated towards debt instruments while the rest goes into equities. On one hand, its exposure to fixed-income securities provides low volatility income; on the other hand, exposure to stocks offers capital gains. 

Read on to learn more about debt hybrid mutual funds and why it is wise to include them in your portfolio.

  • Safety net of fixed-income instruments

A major proportion of a debt hybrid mutual fund portfolio is allocated towards treasury bills, corporate debts like debentures, government bonds, and other similar low-risk instruments. This ensures that your capital remains safe while still allowing you to take advantage of investing in such funds. Furthermore, since many of these instruments are backed by the government or large corporate entities, there is an additional layer of protection on capital.

  • Combination of both debt and equity  

Debt hybrid mutual funds are known for providing investors with the best of both worlds – the stability of debt investments and the high returns potential of equity. This is made possible through a portfolio mix that strategically combines debt and equity in a predetermined asset allocation overseen by an experienced fund manager. This allows you to benefit from the security offered by debt-based investments while at the same time, profiting from any potential growth in equities over time. 

  • Tax benefits

Debt hybrid funds are great investments due to the inherent tax benefits they offer. For instance, when held for three years or more, these funds qualify for long-term capital gains taxation (20%) with the benefit of indexation (adjusting the cost of acquisition by inflation). 

  • Diversification balances risk and rewards

Investing in debt hybrid mutual funds can help you diversify your portfolio without having to manage two separate investments. These funds provide exposure to debt and equity securities, allowing you to benefit from the different market cycles and balance out risks and rewards. 

With this investment, you can create a dynamic mutual fund portfolio that responds accordingly to changing markets. Using debt hybrid mutual funds, instead of investing separately in each asset class, offers greater flexibility for your financial needs while providing better risk management opportunities.

  • You can start an SIP and start small

Starting an SIP or systematic investment plan is an easy way to invest in debt hybrid mutual funds. With an SIP, your regular investments can be scheduled to suit your personal budget and lifestyle so that you can take advantage of debt hybrid funds without compromising on returns. 

As opposed to investing in lump sum in mutual fund schemes, this kind of staggered investment approach allows you to leverage fluctuations in the market over a period of time, potentially yielding higher returns than investing the entire amount at once. Furthermore, by allowing investments with a low amount, SIPs can be helpful for investors with limited incomes who want to secure their financial future. 

Closing thoughts

There are many reasons why debt hybrid mutual funds make a great investment, but some of the most notable are that they aim for capital appreciation, stability, and limited exposure to high-risk investments. Also, to make the most out of this investment opportunity, it is important that you get professional advice before getting started. With professional guidance and a well-planned mutual funds investment strategy, you can use these funds to build a strong foundation for your financial future.