Understanding hybrid funds: A balanced investment approach
In this episode of Let’s Talk Money — Dinesh Balachandran, Head of Equity at SBI Mutual Fund, and Shyam Sunder, Managing Director at PeakAlpha Investments, explored the value of hybrid funds and their role in catering to different investor profiles.
Hybrid funds are designed to handle the asset allocation component of a portfolio, blending different asset classes, typically equities and fixed income, to provide a more balanced risk-return profile.
Balachandran highlighted the primary reason hybrid funds are attractive, especially for risk-averse investors.
“When people think about equities, they understand its potential to generate wealth over the long term, but the fear of market drawdowns—like seeing a portfolio drop by 10-15%—makes many hesitant to stay invested. Hybrid funds help by offering exposure to equity while tempering the risk with fixed-income assets,” he said.
Shyam Sunder emphasised the emotional element of investing, especially in the context of market cycles. In bull markets, there’s a tendency for greed to drive investors to pour more money into equities, while in bear markets, fear pushes them to withdraw.
“If you ask any investor what they would like to achieve, they would say, ‘I want to buy low and sell high,’ but emotional factors often lead them to do the opposite,” Sunder explained.
Hybrid funds mitigate this behavior by automatically rebalancing the portfolio, ensuring that investors don’t fall prey to impulsive decisions.
Sunder also pointed out that with the current market levels, investors may fear missing out on gains, which drives their desire to stay heavily invested in equities. Hybrid funds, by balancing equity exposure with fixed income, can serve as a safeguard, allowing participation in market growth while controlling downside risk.
For full interview, watch accompanying video
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