Types of Hybrid Funds

When comparing a hybrid fund’s portfolio with an equity fund’s portfolio, hybrid funds are far more diverse.

ASSET ALLOCATION FUNDS. These funds are required to keep a certain percentage spread across stocks, bonds, and money market instruments. By investing in an asset allocation fund, you would be taking advantage of the different types of investment vehicles with the convenience of one mutual fund. Different types of asset allocation funds exist. Some may be more heavily weighted in income-producing investments, while others may be more geared toward growth investments. It’s also important to make sure that if you do invest in one of these types of funds, that you don’t wind up duplicating your overall allocation through some of the other investment choices you make. For example, let’s say your overall asset allocation mix calls for a small percentage to be in growth stocks. Be careful that if you invest in a largely growth-oriented asset allocation fund, you temper that with other, more income-producing mutual funds, rather than an aggressive growth fund. That way, you won’t wind up with too many of your investment dollars in one side of the investment spectrum.

BALANCED FUNDS. Balanced funds are similar to asset allocation funds since they hold a substantially equal weighting of common stocks and bonds. However, because they aren’t required to have specific percentages, they are their own category, rather than being lumped together with asset allocation funds, The goal of a balanced fund is to preserve the principal, while making reasonable returns, and paying income, based upon dividends. They also seek to achieve long-term growth while keeping the principal preservation and current income values intact. While the percentages of the underlying investments may be changing on a regular basis, the prospectus for a balanced fund will contain the most recent holdings and stock-tobond breakdowns.

FLEXIBLE PORTFOLIO FUNDS. Flexible portfolio funds are essentially balanced funds except they change their asset allocation more quickly, and are permitted to hold 100 percent of any one given asset at any time.

INCOME-MIXED FUNDS. Through investing in government and corporate bonds, as well as common stock that pays reasonably high, consistent dividends, income-mixed funds strive to provide their shareholders with current income at a relatively high level.