Hybrid funds have become a preferred choice for investors seeking a balanced approach to their portfolios, with September 2023 witnessing a surge in inflows that surpassed the previous month. According to data from the Association of Mutual Funds in India (AMFI), hybrid funds received a robust inflow of ₹18,650 crore, outpacing the August figure of ₹17,082 crore.

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This positive trajectory in hybrid fund investments can be attributed to investors' renewed interest in capital preservation and the ongoing bull run in the equity markets. Kishore Subramanian, Founder of Shree Consultants, a financial product distribution company, said market volatility, driven by geopolitical factors, played a pivotal role in this surge.

He emphasised, "For the seasoned investor, these circumstances present themselves as an opportunity to increase their holdings or initiate new investments."

The returns

Hybrid funds have shown a positive trajectory in terms of their performance over the last five years. According to Subramanian, among debt-oriented hybrid funds, Kotak Debt Hybrid Funds has led the way with 11.86% increase in performance and an accumulated asset under management (AUM) of nearly ₹2,000 crore. SBI Conservative Hybrid Fund follows closely with an 11.04% increase in performance and an AUM of almost ₹9,000 crore. HSBC Conservative Hybrid Fund also posted a notable 8.96% increase in the last five years with an AUM of ₹109.4 crore.

Among equity-oriented hybrid funds, Subramanian said Kotak Equity Hybrid Fund has led the way with a 16.92% increase in performance and an AUM of almost ₹4,267 crore. JM Equity Hybrid Fund closely follows with a 15.21% increase in performance and an AUM of ₹74.45 crore. HDFC Hybrid Equity Fund also showcased a 14.08% increase in performance with an AUM of ₹21,045 crore.

Here's a look at one and three year returns of some of the hybrid funds:

(Source: Moneycontrol)

Investment considerations

As per Subramanian, hybrid funds are designed to provide a balance between debt and equity, making them a sound choice during market volatility.

"Hybrid funds function on an automatic asset allocation methodology, which helps investors get better returns. For hybrid funds, market volatility is a blessing in disguise. For instance, if someone invests in an equity-oriented hybrid fund with a 60% equity and a 40% debt allocation, when the equity market corrects, the fund will automatically rebalance by buying additional equity, potentially leading to higher returns when the market rebounds," he told CNBC-TV18.com.

"Current global uncertainties, including the ongoing war in Israel, rising interest rates in the US, and persistent inflation, make hybrid funds an attractive investment option. While India maintains a healthy inflation rate, global events reinforce the need to play it safe, making hybrid funds an appealing choice for investors looking to hedge their risks," he said.

However, as with any investment, it is essential to consider one's financial goals, risk tolerance, and consult with a financial advisor before making any investment decisions.

(Edited by : Shoma Bhattacharjee)