Ask Morningstar: Choosing between 2 hybrid funds

By Kavitha Krishnan |  30-01-22 | 

How does one choose between two hybrid funds? I am looking at SBI Hybrid Equity and UTI Hybrid Equity.

Choosing between hybrid funds depends on your risk appetite. While equity funds are considered ‘riskier’, debt funds are considered a ‘safer’ investment option. It is however important to understand that investments – both equity and debt come with a certain amount of risk and investors should evaluate the funds and understand the underlying risks of investing in them.

There are different types of hybrid funds that you choose to invest in, based on your risk appetite.

  • Equity based aggressive hybrid funds invest at least 65% in equity and the remaining in debt instruments.
  • Debt hybrid funds or conservative funds on the other hand allocate a larger portion to debt instruments with a 15-25% allocation to equity instruments.
  • Balanced funds allocate around 40-60% towards equity instruments.
  • Dynamic funds on the other hand have the flexibility to dynamically shift their allocation between equity and debt depending on the asset class’s attractiveness and manager’s view.

Both the UTI Hybrid Equity fund and the SBI Hybrid Equity fund are aggressively positioned with a higher allocation to equity instruments. Both the funds are managed by tenured and seasoned managers who are long timers at the respective fund houses.

The UTI Equity Hybrid is a benchmark aware strategy that looks at investing for the long term. The manager seeks to invest in value stocks and mispriced opportunities within the equity segment. On the debt side, they typically look at investing in the most liquid instruments as the shorter end of the yield curve.

The SBI Hybrid Equity fund invests in the manager’s high conviction ideas and is managed dynamically, based on a bottom-up approach and a predominant large cap allocation. The debt portion on the other hand is majorly invested across AAA and AA rated papers.

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