2025 mutual fund mantra: Get better returns with multi-asset and hybrid funds

Kolkata: The past one year has not been very rewarding for investors in equity mutual funds. Against that backdrop, analysts are pointing out that if you want to opt for balanced investments that will generate steady, if not fantastic returns, you can consider multi-asset and hybrid mutual fund schemes. These schemes curb risk by spreading a basket of different asset classes and generate relatively stable returns in different market conditions.

This year, multi-asset and hybrid funds are perhaps the most prudent way of securing a stable portfolio. These mutual fund schemes strike the optimum balance between risk and return by investing in a variety of assets such as equity, debt and even realty according to market conditions. These can be a destination if you are looking to reduce volatility in earnings and yet beat inflation by a significant margin.

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Hybrid funds and how they work

As the name indicates hybrid funds invest in both equity and debt. Types of hybrid funds are Dynamic Asset Allocation Funds or Balanced Advantage Funds. Traditional hybrid funds offer a fixed ratio of equity and debt, but these funds are different. The words "Dynamic" and "Balanced" point to the fact that the ratios are not fixed in these funds, which employ quantitative and qualitative models to change investment based on market condition, change in prices, returns from government securities and other macro economic indicators. These can change the investment pattern according to the market conditions. When the equity market is expensive, the fund manager can reduce the exposure in equity and steps up exposure in debt or arbitrage positions. The converse is also true.

These funds are considered an appropriate starting point for new investors seeking to gain from the equity market. These funds also help in mitigating the impact of mistakes, especially those pertaining to striking the market at the right time.

Multi-asset funds and how they work

Multi-asset funds play the diversification game a step further. These invest in at least three different assets and undertake an exposure of a minimum 10% in each of them, say equities, debt, gold. Some of these scheme also take exposure in global equities, REITs (real estate investment trusts) and commodities. Fund managers use their skill to invest in different assets based on the market trends of any given time and economic climate. They also need to rebalance the portfolio periodically to maintain the risk-return balance in line with the investor targets. Rebalancing is necessary to avoid over-exposure in any one asset category.

From the investor point of view, these funds allow them to reap the benefits of different asset classes with a single investment. These funds eliminate the need to monitor multiple funds or make asset allocation decisions by investors themselves, curbing chances of mistakes. Multi-asset funds are appropriate for investors who seek diversity and simplicity on their own.