What are ‘Hybrid funds’ ?
They bridge the gap between equity and debt schemes by investing in a mix of equity and debt securities. This adds a considerable amount of risk to the product and will suit investors looking for commensurate returns with higher levels of risk than regular debt funds.
- Monthly Income Plans (MIPs) strive to offer the benefit of diversification across asset classes by investing a proportion of the portfolio in debt securities (70% to 95%) with a smaller allocation in equity securities (5 % to 30 %).
As the correlation between prices of equity and debt is low, this product endeavors to give an investor returns that are relatively higher than debt market returns. MIPs can be classified as debt oriented hybrids that seek to –
- generate income from the debt securities
- maximise the benefits of long term growth from equity securities
- aim for periodic distribution of dividends
However, an important point to be noted is that monthly income is not assured and it is subject to the availability of distributable surplus in the fund.