Dhirendra Kumar sheds light on how hybrid funds are managed
How diversified is the equity portion of a hybrid fund? Does it invest in all market segments - large, mid and small-cap?
Some hybrid funds manage their equity portion as flexi cap or multi-cap funds investing across market segments. However, when a hybrid fund grows very large, the mid and small-cap exposure gets reduced substantially.
Two things drive the performance of a hybrid fund. One is the discipline of rebalancing asset allocation, and the other is being right or good with your equity investment. Thus, I would say that most investors should look at the fund's portfolio and review that portfolio every year because these funds change their characteristics with time. As more and more investors put their money, the fund manager is forced to invest and actively manage it, which changes the fund characteristics. Hence, choose a fund that has a greater discipline of asset allocation rebalancing and which is more diverse.