Hybrid funds made a remarkable comeback in the 2023-24 financial year, drawing a net inflow of Rs 1.45 trillion after experiencing a net outflow of Rs 18,813 crore in the previous year. The number of investors in hybrid funds also surged by 1.4 million, reaching an impressive 13.5 million folios by March 2024, which showcases a growing interest in these diversified investment options. One of the driving forces behind this resurgence was the shift in tax rules for debt funds that occurred in April 2023. The alteration eliminated the indexation benefit for debt funds held over three years, making hybrid funds a more attractive investment alternative for many investors.
Investors may have also turned to hybrid funds due to the anticipation of a decline in interest rates in the 2023-24 financial year. Although the expected rate cuts did not materialize, the allure of potentially higher bond yields in hybrid funds kept investor interest steady. Moreover, the appeal of diversification across asset classes offered by hybrid funds played a crucial role in attracting investors seeking a balance between growth opportunities and stability in volatile market conditions. These funds provide a mix of investments in equities, debt, and sometimes even gold, offering a balanced approach to potential growth and risk management, making them suitable for investors with moderate risk tolerance levels.
The attractiveness of hybrid funds was further exemplified by the substantial increase in assets under management (AUM) in various subcategories within the hybrid mutual fund space. Notably, funds like arbitrage, multi-asset allocation, balanced advantage, and equity savings witnessed notable inflows, boosting the overall growth of hybrid funds' AUM to Rs 7.2 trillion by March 2024. The traditional hybrid fund categories, such as conservative and balanced allocation funds, lagged behind due to investors gravitating towards actively managed asset allocation funds like multi-asset funds and equity savings, which offered a return booster while reducing overall risks for investors. This significant resurgence in the hybrid fund segment contributed to the mutual fund industry reaching a record high AUM of Rs 53.40 trillion by March 2024.