Hybrid funds buck the trend as investors get cautious in mutual funds

With the equity markets in correction mode, many investors are confused. With no clear signs on the horizon about how long this volatility will last, mutual fund investors are reacting impulsively and following a herd mentality. The latest numbers from the Association of Mutual Funds in India (AMFI) reflect this sentiment. Data for the month of February shows that a staggering Rs 9.87 lakh crore was redeemed by investors across mutual funds. There was also a fall in the total funds mobilised for the month at Rs 10.27 lakh crore, down from Rs 12.17 lakh crore in January. Clearly, investors are not looking at the prudent investment options considered a safe haven in volatile times.

Take a look at hybrid mutual funds, which has bucked this trend. The AMFI data suggests that while the category mobilised Rs 28,461 crore in February, there was a fall in redemptions for the month, down to Rs 21,657 crore from Rs 26,202 crore in January this year. The data shows that investors are holding on to their exposure in hybrid funds in the midst of a highly volatile market.

The reason for the faith in hybrid funds is the nature of the fund itself. Hybrid funds are considered the safest bet for investors sailing in choppy market conditions. Since these funds offer a diversified portfolio of equity, debt, and commodities, the risk is mitigated and investors can get potentially decent returns, despite a fall in the markets. Funds like the Nippon India Multi Asset Fund, which follows a definite allocation across equity, are considered a good buy in the current market scenario, since it has exposure to gold as well, which has been touching new highs in the last few weeks. Similarly, hybrid funds from Samco. Edelweiss, Invesco and ICICI Prudential are also delivered positive returns in a falling market.

In fact, hybrid funds stand out in terms of returns to investors. If you look at YTD returns, hybrid funds lead the pack with near double digit returns.

Market experts opine that in the current phase of financial uncertainties, right asset allocation put investors to a significant advantage and hybrid mutual funds are a versatile investment choice. Since these funds combine multiple asset classes like equity, debt, and commodities, they allow investors to achieve the dual goal of a hedged and a diversified portfolio.