There are innumerable investment options in the Canadian stock market. For a newbie, it can get a little confusing. This is because the stock market lets you earn huge profits but it can come with huge risks too.
So, are there relatively safe options? Are there any funds you can invest in without increasing your risk? The answer is YES!
Hybrid funds are a relatively safer investment tool. They help you safeguard your money against market fluctuations. Let’s get cracking on what a hybrid fund is and what are its benefits.
Let’s get started then!
What is a Hybrid fund?
Hybrid is a concoction of various asset classes, from high to low risk. As the name suggests, the hybrid fund is the investment you do across multiple asset classes.
These hybrid funds usually invest in an asset class. It consists of equity, debt, and other products proportionately. These are based on your investment preferences.
What are the kinds of hybrid funds?
Based on the blend of equity and debt in a certain proportion and aimed to serve various investment needs, the hybrid funds are designed by the Canadian fund houses.
Here are some examples of hybrid funds:
Multi-Asset Allocation Fund: The fund requires you to invest in at least 3 asset classes. It must have 10% of investment in each of the classes.
Balanced Hybrid Funds: This scheme requires you to invest a minimum of 40% and a maximum of 60% of investment value in the equity and debt asset classes.
Aggressive Hybrid Funds: In this type of fund, the investment allocation for the equity assets class is 65% to 80%, and for the debt asset class is 20%–35%.
Dynamic Asset Allocation: This fund allows you to shift from 100% debt to 100% equity asset class.
Conservative Hybrid Funds: You invest 75% – 90% in debt and 10% – 25% in equity.
Equity Savings Fund: This type of fund allows you to invest in equity-class, debt-class, and other random options.
What are the risks to be considered before investing in hybrid funds?
We know investing can sometimes get a little wobbly. With market fluctuations and risks, you need to be aware of all the pitfalls associated with investments. The plus factor about the hybrid funds is that these funds offer schemes with varying degrees of risk appetite.
Here are some risks you should consider:
Returns: Hybrid funds don’t offer guaranteed returns. The returns you will get varies with the investment performance.
Risks: There is an inherent risk associated with every kind of investment. If your investment allocation is skewed towards equity, the ensuing risk would be higher.
The time associated with investment: If you stay invested for a longer time, only then you might gain better yields.
The strategy of investment: With different combinations of assets, you must develop a robust investment strategy. The strategy must be developed by balancing your investment portfolio with your needs. Keep in mind the strategy you develop with your fund manager. It will affect your short- and long-term financial goals.
What are the benefits of investing in a hybrid fund?
Here are some key benefits of investing in hybrid funds:
Relatively less risky: As you distribute your fund in various assets, the hybrid funds can absorb market volatility. They can also absorb more fluctuations as compared to pure equity funds.
Budding investor’s investment platform: The key takeaway of the hybrid funds is these are the ideal springboard for investments, especially for beginners.
Risk management: Because you allocate your investments across various asset classes, you distribute the risk too from high to low. These hybrid funds combine the apparently non-correlated assets and thus handle the risk factors.
Variation factor: The hybrid funds help you diversify your portfolio across various asset classes and subclasses.
Decide when to sell: The fund managers re-balance your portfolio. These managers decide when to sell a particular asset if the market sentiment for the asset class shows an upswing in profit.
The Bottom Line
Mutual funds have always been associated with market risks and are subject to market volatility. You need to be cautious about your investment portfolio.
You now have all the facts related to hybrid funds to help you make an informed decision. Choose wisely where you want to invest your money.
If you want to know more about different equity funds, read “What is an equity fund? And what are its various types?