Edited excerpts from a chat:
Many investors are unsure whether to stay in equities or move to safer assets. Should investors consider increasing allocation to hybrid funds right now?If investors are unsure about staying in equities after a year of flat returns, they are not really ‘investors’ and their results will likely be sub-optimal over time. If asset allocation drifts from target ranges due to moves in asset classes or new inflows (often from incremental savings), they should of course rebalance.
Hybrids are solution-oriented categories. A defensive, lay investor can do well with simple multi-asset funds over long periods. Most investors don’t hold more than 70% in equities; such investors can use aggressive hybrid funds. The 30% debt sleeve and the equity–debt rebalancing is handled in a tax-efficient way. For the majority of investors, an aggressive-hybrid plan can deliver better post-tax outcomes than a DIY equity + debt mix.
If you are extremely conservative or want to time entry on incremental flows and believe you can do so, equity savings funds are a reasonable choice.
Still, most investors are better served by clarifying goals, assessing risk appetite, and reviewing past behavior. Those traits rarely change much. Pick the strategy or category that suits you, and stay with it. Follow the Delphic advice, “know thyself,” and reduce the number of decisions you need to make over time. The fewer the decisions, the better the outcomes.For someone sitting on cash and waiting for clarity, do hybrid funds offer a good entry point into markets compared to pure equity or debt products?Most investors are busy with their life’s small storms: work, family, deadlines, children, bills, and the odd sleepless night. They don’t have the time or inclination to study markets. Someone asking this question is not an aggressive or enterprising investor; those investors rely on a framework built and refined by experience. For everyone else, a simple, well-chosen hybrid fund owned steadily over time usually serves well.Do not ask what the market will do next year. If there is something very smart to do or something foolish to avoid your fund manager will hopefully do it. Use a 10 year lens. Structured investments through SIPs and hybrid funds with proper allocation can lead to superior outcomes.
You often call hybrid funds a “seatbelt for portfolios.” How much of an investor’s portfolio should ideally be allocated to hybrids to get meaningful protection without sacrificing growth?Most investors are not giving up growth by using hybrids; that belief is mistaken. If you usually run 30%, 50%, or 70% equity with the rest in debt-like options, compare your overall portfolio return to a comparable hybrid not just your equity sleeve. Hybrids also carry smaller drawdowns, the seatbelt that keeps investors from bailing out in sharp crashes. That is a major edge. Think of the debt portion housed inside a hybrid mutual fund wrapper leading to tax advantages. Most people can keep nearly all long-term money in hybrid funds and get better outcomes. Even elite endowments run complex mixes of listed/unlisted equity, commodities, and alternatives, yet often trail a simple 70:30 equity/debt portfolio. Why should a lay investor expect to do better?
DSP Aggressive Hybrid Fund, Dynamic Asset Allocation Fund, and Equity Savings Fund each follow different strategies. Which type of hybrid do you think is best suited for first-time investors entering mutual funds today?Equity savings is the most conservative amongst the three with about 30% in equities. Dynamic Asset Allocation Funds can shift from roughly 30% to 80% equity. Aggressive Hybrids usually hold 65% to 80% equity.
These suit different goals and risk appetites. For horizons beyond 10 years and if you expect to draw cash later via a Systematic Withdrawal Plan the Aggressive Hybrid category is well suited.
How do you balance the equity-debt mix in the current environment when both asset classes are facing their own set of challenges?One of my core beliefs is that structure beats activity. Hybrid funds reduce the number of decisions an investor must make. The same holds for fund managers. In Equity Savings, we keep equity near 30–35% and, when markets are expensive, use index options as hedges. In Aggressive Hybrid, the manager’s leeway is only about 15% (65–80% equity), which is another reason I prefer this category. Dynamic Asset Allocation funds use a model-based process to set equity exposure. The broad principle is a sound, consistent structure with fewer decisions.
What is your advice to conservative investors nearing retirement? Should hybrid funds play a bigger role in their portfolios compared to traditional fixed deposits or pure debt funds?In ‘The Intelligent Investor’, Benjamin Graham doesn’t treat age as an asset-allocation rule. Should a 90-year-old multimillionaire automatically be conservative? Should a 25-year-old with an unstable job and heavy debt be aggressive? Circumstances matter. In practice, retirees are often more cautious, more anxious, and more exposed to shocks than the average investor. Hybrid funds suit most investors; they therefore work well for retirees too.
as a Reliable and Trusted News Source
