Things you should know about the hybrid schemes post recategorization

Post SEBI’s circular, the hybrid schemes have been categorised under 6 subcategories. These categories have different approaches and investment styles. Let's look at how these categories are defined.

Conservative hybrid funds- These schemes are expected to invest 75 to 90 per cent of their total assets under management in debt securities. Further, they can invest around 10 to 25 per cent in equity-related instruments. As these schemes invest predominantly in debt securities they are named as conservative schemes.

Balanced hybrid and aggressive hybrid funds- Balanced hybrid funds are the funds which are expected to invest around 40 to 60 per cent of their total assets under management in equity or debt instruments. Whereas aggressive hybrid funds are expected to invest around 65 to 85 per cent of their total assets in equity-related instruments as well as these funds can invest around 20 to 35 per cent of their assets in debt instruments. Asset management company can offer only one of these two categories, either a balanced hybrid or an aggressive hybrid fund.

Dynamic asset allocation or balanced advantage fund- These funds invest in both equity and debt instruments dynamically. That is, as per the market movement, the fund managers shift the focus to equity and debt instruments and adjust the asset allocation in the best possible way to benefit investors.

Multi-asset allocation fund- These schemes are expected to invest in three asset classes atleast, and are also expected to allocate a minimum of 10 per cent to each of the asset classes.

Arbitrage Funds- These schemes follow arbitrage strategy. These schemes are expected to invest 65 per cent of their assets in the equity or equity related instruments.

Equity saving funds- Equity saving funds can invest in equity, debt and arbitrage, however, these schemes are expected to invest atleast 65 per cent of its assets in the equities and minimum 10 per cent in debts.