Should You Tilt Towards Hybrid Funds During Market Volatility?

Market ups and downs are not new. But what’s new every time is how they make you feel. One moment, you're hopeful. Next, you're anxious. When markets swing sharply, you might feel compelled to act quickly.

This sometimes leads to selling in panic or sitting on the sidelines. But is there a better way to navigate such uncertainty? This is where hybrid funds quietly step into the spotlight. They balance the rush of equity and the safety of debt. But are they right for you? Let’s understand for a better investment plan.

Understanding Hybrid Funds

In simple terms, hybrid funds are mutual funds that invest in both equity (stocks) and debt (bonds or fixed-income instruments). They diversify risk by not putting all your money in one asset class.

Depending on the type, a hybrid fund can lean more towards equity, more towards debt, or stay balanced. This built-in diversification can make your portfolio more resilient. This is especially true during volatile times.

To understand this better, think of it like this:

• Equity-only funds = Faster, riskier.
• Debt-only funds = Slower, safer.
• Hybrid funds = can adapt to both.

Key Features of Hybrid Funds

Diversification:

By spreading investments across asset classes, hybrid funds reduce the impact of a downturn in any one market segment.

• Professional Management:

Fund managers actively manage the allocation between equity and debt. However, this is based on market conditions.

• Regular Income and Growth:

Debt provides steady income, while equity offers growth potential.

• Lower Volatility:

The debt part of your portfolio helps protect it during market drops. So, it doesn’t rise and fall as sharply as pure equity funds.

Why Should You Consider Hybrid Funds During Market Volatility?

Hybrid funds are designed to fight the market storms better than pure equity funds. Here’s why you might want to tilt towards them when markets are unpredictable:

• Risk Mitigation:

The debt portion acts as a buffer, reducing the overall risk and volatility of your portfolio.

• Better Risk-Adjusted Return:

During volatile periods, hybrid funds often deliver more stable returns compared to pure equity funds. This helps you stay on track with your investment plan.

• Ideal for Goal-based Investing:

Let’s say you’re investing for a down payment 3–5 years away. A hybrid fund might offer better returns than a fixed deposit while being less risky than a pure equity fund. It helps you grow your money without exposing your goals to high risk.

• Flexibility:

Some hybrid funds, like balanced advantage funds, automatically adjust the equity-debt mix based on market trends. The aim is to optimise returns while managing risk.

• Disciplined Investing:

Investing in hybrid funds through SIPs helps you stay invested and benefit from buying at different prices, even when the market is unstable.

Categories of Hybrid Funds for Different Risk Profiles

Hybrid funds come in several varieties, each catering to a different risk appetite.

Here’s a breakdown of each type:

Fund Type	Equity Allocation	Debt Allocation	Suitable For	Key Benefit
Aggressive Hybrid Funds	65–80%	20–35%	Moderate to high risk-takers	Growth with some stability
Conservative Hybrid Funds	10–25%	75–90%	Conservative investors	Capital preservation, steady income
Balanced Hybrid Funds	40–60%	40–60%	Moderate risk-takers	Balanced growth and stability
Dynamic Asset Allocation/Balanced Advantage	Varies	Varies	All risk profiles	Flexibility, market-driven
Multi-Asset Allocation Funds	≥10% in 3 assets	Varies	Diversification seekers	Spreads risk across asset classes
Arbitrage Funds	65%+ in equity	Varies	Low risk, short-term investors	Stable returns, minimal risk

 

Example

Let’s say you're in your 30s and planning for retirement in the next 15–20 years. An aggressive hybrid fund could be a suitable part of your broader investment plan.

On the other hand, you're nearing a major financial goal, like a child’s education, in the next 3 years. A conservative or balanced hybrid fund might suit you better.

Conclusion

Market volatility is a part of investing. Instead of reacting emotionally, remember that no single fund suits everyone. However, hybrid funds offer a balanced approach that can help make your investment journey smoother, especially when markets are unpredictable.

Consider tilting towards hybrid funds as part of your broader investment plan. Their diversified approach can help you face market turbulence confidently, balance risk and reward, and stay focused on your long-term goals.