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Should I use a mixture of FDs & equity instead of a hybrid fund?

Dhirendra Kumar talks about the viability of a combination of equity funds and bank FDs

Instead of balanced funds, would it be better to invest in pure diversified equity funds plus bank FDs for the debt portion, given the complex and not-so-good debt market? Specifically, if a person can do the asset balancing on his/her own.
- Mamta

Yes, this is one of the ways to invest in a combination of equity and debt instead of aggressive hybrid funds, as the key thing is asset allocation. Make sure that you will be able to rebalance and you're comfortable with your chosen asset allocation. But my sense is that if this is a long-term allocation, assuming that you have Rs 50 lakh and you choose to invest Rs 25 lakh in an equity fund and Rs 25 lakh in a fixed deposit, then some issues can be there. If the equity goes down, you will have to do some kind of premature encashment of the fixed deposit and put money in the equity. Now, how often you can do it is also a concern. Further, when it comes to tax efficiency, debt funds turn out to be far more tax-efficient than fixed deposits.

My suggestion is that consider not the very fancy debt funds. Instead, be very conservative in it and opt for a liquid fund or maybe ultra-short-term bond fund. They do not have any significant downside and anyway, you are taking the equity risk. So, you understand the volatility and these debt categories are not as volatile as equity funds are. But if you find debt funds complex, then go ahead with the combination of bank deposits and equity funds. It is the second-best thing anyway.

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