Smart things to know about Hybrid mutual funds

• Posted by Sindhuri G August 28, 2012 - Filed in Business - 2,193 views

  1.Hybrid mutual funds invest in more than one asset class, the most popular being the ones that invest in debt and equity. For example, balanced funds may hold 65-80% of their assets in equity, while the monthly income plans may allocate 10-30% to equity.
  
  2. The risk in the case of a hybrid fund stems primarily from the proportion of equity holding in the portfolio. The higher the equity component, the greater the risk.
  
  3. In debt-oriented funds, the risk depends on the manner in which the return is generated. A fund that banks on return mainly from coupon income of debt securities may be less risky than one that relies on gains from price appreciation.
  
  4. The quantitative measures of interest rate risk of the debt component include the duration and average maturity of the portfolio. The beta is a measure of the risk stemming from the equity component.
  
  5. Fund houses can put together a benchmark by combining two or more indices in the same ratio as the fund's asset allocation. So, for a children's fund that is split equally between equity and debt, the benchmark may be defined as '50% Nifty+50% Crisil Composite Bond Index'.