Hybrid mutual funds stage comeback; see Rs 1.45 lakh crore inflows driven by arbitrage investments

Hybrid mutual fund schemes have seen a resurgence in 2023-24, garnering Rs 1.45 lakh crore in investments, driven by substantial inflows into the arbitrage category, following withdrawals in the previous fiscal year. The surge in assets was complemented by an increase in the number of investors, with the number of folios reaching 1.35 crore in March 2024 from 1.21 crore a year earlier, adding an investor base of 14 lakh. This shows investors’ inclination for hybrid funds.

Hybrid funds are mutual fund schemes that typically invest in a combination of equity and debt securities and sometimes in other asset categories such as gold.

The category has been attracting regular inflows since the beginning of financial year 2023-24 in April after a change in taxation for debt funds that kicked off in the same month. Before that, the segment saw a net withdrawal of Rs 12,372 crore in March.

Overall, the hybrid category saw net inflows of Rs 1.45 lakh crore in FY24, compared to an outflow of Rs 18,813 crore in FY23, data with the Association of Mutual Funds in India (AMFI) showed.

“Anticipating a reversal in the interest rate hike cycle in FY24, market participants strategically allocated funds to capitalize on higher rates, while continuing a favourable stance towards equities, real estate, and gold.

However, the rate cuts never materialized and bond yields continue to be higher, retaining the interest of investors,” Gopal Kavalireddi, Vice President – Research at FYERS, said.