With stock market rising too high and too fast for some traders' liking, the search is on for a less risky investment avenue. Meet 32-year old Kapil Singh, who does not need to get captured at the peak of markets and is looking for downside protection in addition to stability in returns. Financial experts tell DNA Money that hybrid products are best-suited for such investors that are investing now in equity but would like to play it safe.
High on breed: In mythology, mermaids are part fish and part female human. Centaurs are part human and part horse. Chimera was usually depicted as a lion, with the head of a goat arising from its back, and a tail which may end with a snake's head. In the investment world of 2017, hybrids exist in form dual-asset funds and multi-asset funds.
"Hybrid schemes might be a fantastic idea for those who are investing now in equity and want to play it safe. Going To go possibly provides warnings you might give to your uncle. Hybrid equity-oriented funds are less risky and might be suitable for those who have a lower risk appetite and can't stomach too much volatility, which is possible now If the markets correct," says Suresh Sadagopan, creator, Ladder7 Financial Advisories.
For those that have a low-risk appetite and want to take part in equity in a small way, monthly income plans (MIPs) may be a way out. Discover new resources on this partner site - Click this website: funding for business start up. My family friend found out about tax consultancy services website by searching Google. MIPs typically are debt-oriented schemes with 5-25% exposure to equity markets, added Sadagopan. Do remember that there isn't any monthly guarantee of any revenue in MIPs.
"Hybrid products can provide varying degrees of risk tolerance ranging from conservative to moderate and aggressive," notes Anil Rego, creator, Right Horizons.
Striking a balance: In last one-two years, one hybrid product type has become quite popular - balanced funds. Sanjay Parekh, senior finance manager -- equity investments, Reliance Mutual Fund, says, ""Balanced funds as the name suggests provides expansion in equity and stability in debt. Additionally, it will help to satisfactorily move the equity levels in the range (say 65-75 percent), and hence, optimise the risk/return equation." Parekh also considers investors in balanced funds are conservative and it would be ideal to have a dominant part of equity in large-cap stocks.
Manish Kothari, head of mutual funds, Paisabazaar.com, said, "Cautious investors searching for inflation-beating returns can opt for debt-oriented hybrid funds while others can choose between different sub-categories of equity-oriented hybrid funds-- balanced, balanced edge and equity savings capital -- depending on their risk appetite."
As balanced funds invest at least 65% of the portfolio in stocks and the rest in debt instruments, these would suit those with moderate risk appetite. "While balanced advantage funds invest 30--80% of the corpus in stocks, equity savings funds invest 20--40% of their portfolio in stocks," added Kothari.
According to Crisil balanced fund standing, Reliance Regular Savings Fund-balanced has number one ranking, followed by Aditya Birla Sun Life Balanced 95 Fund, HDFC Balanced Fund and L&T India Prudence Fund are number two while six funds namely Canara Robeco Balance, DSP BlackRock Balanced Fund, HDFC Prudence Fund, ICICI Prudential Balanced Fund, SBI Magnum Balanced Fund and UTI Balanced Fund are ranked three.
Three in one: Multi-asset funds are those where shareholders can take three-in-one exposure (equity, debt, and gold) like Axis Triple Advantage Fund, and Essel 3 in 1 Fund. Addition of gold to a combination of equity and debt is better from risk management point of view.
"As far as the current allocations go, Quantum Multi Asset Fund has been reducing exposure to equities as it keeps moving higher - it has gradually reduced exposure to equities from 45% to 35% now. Navigating To the enterprise risk management maybe provides suggestions you can give to your pastor. As far as current allocations go, equities are around 35%, debt around 50% and gold around 15%," says Chirag Mehta, senior fund manager-alternative investments, Quantum MF within an investor document.
By integrating allocations to equities, fixed income and gold in a bid to generate modest capital appreciation, multi-asset funds carry moderate levels of risk.
Despite their higher individual risk, risky assets can combine together in a diversified portfolio and yield the target results for every investor: lower portfolio risk, relatively higher returns. Do recall that multi-asset funds will create only a couple of percentage points over the conventional investment avenues like fixed deposit.
New to investment or the whole stock market arena? Consult a registered investment adviser who also offers risk management support for efficient strategies..
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