What are Debt Funds and Hybrid Funds? Learn which option can be better

A mutual fund is a group of funds that a fund manager professionally manages. It is a trust that makes investments in stocks, bonds, money market securities, and/or other securities after gathering funds from a number of participants. These investors share the same investment objectives and by calculating a scheme’s “Net Asset Value,” or NAV, the income/gains earned from this collective investment are distributed proportionately among the investors after taking into account any expenditure and levies. A mutual fund, to put it simply, is a collection of investments made by a variety of people.

Debt Funds:

Bonds and treasury bills are examples of fixed-income assets that debt funds invest in. Some of the investment alternatives in debt funds include gilt funds, monthly income plans (MIPs), short-term plans (STPs), liquid funds, and fixed maturity plans (FMPs). Debt funds also contain a variety of funds that invest in short, medium, and long-term bonds in addition to these categories. People who are unwilling to invest in an extremely volatile equities market opt for debt funds. Compared to equity funds, a debt fund offers a regular but low income. It is less volatile in comparison.

Hybrid Funds:

In order to diversify their holdings and reduce the risk of concentration, hybrid funds invest in both debt and equity assets. An ideal combination of the two provides better returns than a typical debt fund while being less risky than equity funds. Your risk tolerance and investment goal will influence the hybrid fund you choose. Through a balanced portfolio, hybrid funds seek to increase wealth over the long term and produce income in the short term. Depending on the investment goal of the fund, the fund manager divides your funds between equity and debt into varying amounts. The fund management may buy or sell securities to profit from changes in the market.

Which one can be better?

Hybrid funds are preferred by conservative investors because they offer higher returns than real debt funds. Hybrid funds are a good option for new investors who want access to the stock markets. A portfolio with equity components has the potential to provide better returns. In addition, the fund’s debt portion acts as a buffer against sharp market volatility. The dynamic asset allocation feature of some hybrid funds can be a wonderful method for investors to benefit from market fluctuations.

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