Your Queries: Mutual Funds – Choose aggressive or conservative hybrid funds basis your risk appetite

Investors should stick to their long-term strategic asset-allocation, based on their risk appetite and not try and time the markets.

As I am not getting any returns from liquid funds, should I start investing in hybrid funds?
—Pankaj Phadnis
Liquid funds are typically used by investors to park their emergency corpus and/or near term cash flow needs. Safety and liquidity are the key concern of investors, while returns take a back seat. Hybrid funds offer some exposure to equities, which typically outperform most asset-classes over the long term. However, equity is more volatile than most asset classes with even possibility of a capital loss over the short-term.

The extent of equity exposure in any hybrid fund depends on the category to which it belongs. Investors can choose from conserv-ative hybrid funds (equity allocation can range from 10-25%) to aggressive hybrid funds (65%-80%). Also, the fixed-income exposure differs from that of liquid funds present-ing duration, credit and liquidity risk to the investor. Hence, risk-return profile of hybrid funds is considerably different from that of liquid funds. Evaluate the fund’s suitability with regards to your risk-appetite, investment horizon and fitment in the overall portfolio.

I have been investing in a SIP for four years. Though I do not need any money now, should I redeem some of the gains, in case markets go down?
—N P Singh
Equities are more volatile than most asset classes with even the possibility of a capital loss over the short-term. However, as the holding period increases, the risk of capital loss diminishes. You should continue to stay invested if you have a long investment horizon, and can even look to allocate further when any corrections take place as these present an opportunity to buy units at cheaper prices. Over longer horizons, equities tend to outperform most asset classes.

Investors should stick to their long-term strategic asset-allocation, based on their risk appetite and not try and time the markets. You can consider re-balancing your asset-allocation back to the target weights in case of any significant drift due to market movement. Withdrawing any corpus would lower your portfolio value to the extent of the amount withdrawn and you might lose out on any subsequent gains on the withdrawn corpus that would have accrued till the end of your investment horizon.

The writer is director, Investment Advisory, Morningstar Investment Adviser (India). Send your queries to fepersonalfinance@expressindia.com