As of February 2025, benchmark indices just like the Sensex and Nifty 50 are down 10–11% from their highs, which implies they’ve misplaced a lot of the beneficial properties they made within the final three months of 2024. The mid-cap and small-cap segments have dropped much more, down 15% from current highs. This reveals how rapidly sentiment has modified in much less liquid elements of the market.
The primary trigger is not simply within the US. Donald Trump, the President of america, is pushing for tariffs once more. For instance, he needs a 25% import responsibility on Canada and Mexico and 10% on China. This has brought about a ripple impact. India’s volatility index (VIX) shot up proper after he gained the election, exhibiting how adjustments in coverage from exterior the nation can nonetheless trigger instability contained in the nation.
However Tariffs Are Solely A part of the Image
On the identical time, China has launched DeepSeek, an AI mannequin that would change the way in which the world talks about expertise. On the identical time, tensions between international locations are rising, manufacturing information continues to be sluggish, and company income have dropped for the reason that second quarter of FY25. Issues about rising costs and inflation linked to local weather change and uncooked supplies costs make the market much more difficult and uneasy.
FIIs Leaving, Home Flows Staying Robust Up January 2025 noticed a pointy ₹78,000 crore sell-off by overseas institutional buyers (FIIs), which made the stress even worse. Among the promoting has been taken up by home buyers, however the imbalance is evident, particularly within the broader market, the place liquidity is decrease and tales change rapidly.
Retail portfolios, particularly these which are closely invested in aggressive fairness mutual funds, have been hit arduous. The values of all shares have gone down, and the drop in mid- and small-cap shares has been a lot worse than what the headline indices present.
Why Individuals Are Paying Extra Consideration to Hybrid Mutual Funds
Individuals are taking a look at hybrid mutual funds, which combine shares and bonds, another way on this market. Not as a result of they’re “secure” or “conservative,” however as a result of they present that you would be able to adapt to a market that’s altering rapidly.Hybrid funds have been round for some time. Individuals are now not seeing them as a fallback, however as a option to keep invested with out being absolutely uncovered to 1 route of the market.
Hybrid funds can lean extra in direction of progress or stability, relying on the kind:
Aggressive hybrid funds, which make investments 65–80% of their cash in shares, let capital develop but additionally take a few of the shocks that pure fairness funds cannot keep away from.
Multi-asset allocation funds, which spend money on gold or different asset lessons, do properly when shares are below stress as a result of they do not transfer in the identical route.
Conservative hybrids, alternatively, deal with debt and solely have a small quantity of fairness publicity. That is helpful when stability is extra essential.
Not Immune, However Capable of Soak up Crises
In bear markets of the previous, hybrid funds have had drawdowns, however they’ve dealt with them higher.
For instance, in the course of the COVID-led sell-off in early 2020, aggressive and multi-asset hybrid funds fell lower than pure fairness funds. The reason being that property are robotically rebalanced and unfold out. When shares fall, the debt half (and typically gold) helps make up for a few of the loss.
That very same mechanism continues to be essential at the moment, when information may cause intraday swings and headlines from exterior the market can change the rankings of complete sectors in a single day.
Volatility Is No Longer an Outlier; It is Constructed In
Not solely are markets extra risky since 2024, however that volatility has additionally turn out to be part of the construction. Provide chains, vitality costs, and geopolitical alignments are all altering, which implies that danger is now not a one-time factor; it is constructed into the market.
It is simple to see why a product that adjustments its asset combine on the fly can be interesting on this state of affairs, each by way of returns and danger administration. Particularly when buyers do not need to be utterly mistaken or utterly proper anymore.
Not a “Secure Haven,” However a Market Buffer
It is essential to know that hybrid funds can nonetheless lose cash. They nonetheless have market danger, particularly those that make investments quite a bit in shares. However what they do provide you with is time and area: time to maneuver issues round and area to take care of corrections with out shedding all of your cash.
Their significance does not develop in bull markets; it grows in transitions, which is the place we’re proper now.
Conclusion
Individuals are paying extra consideration to hybrid mutual funds once more, however it’s not as a result of they need to generate profits or keep away from danger. It is about realising that the market has modified completely, not only for a short while.
As issues get extra risky and correlations break down, asset allocation itself turns into the product. In that sense, hybrid funds aren’t a compromise; they are a signal of how arduous it’s for buyers to navigate the market proper now.
(The creator of the article is Chakravarthy V, Cofounder & Govt Director, Prime Wealth Finserv Pvt Ltd.)
