Hybrid Funds gives you exposure in equity and debt. Find out the Types and its Benefits


The investment line includes many subcategories such as equity, debt, hybrids (mix of debt & equity), etc. High-risk investors put most of their money into stocks. Debt is typically invested by investors who want a steady income but less exposure than equity investors. Investors might choose hybrid funds if they wish to have the ideal of both worlds.

Now, it’s critical to understand a few things before making any financial decisions, such as your risk tolerance, the list of monetary objectives you hope to achieve, the length of time you plan to invest, etc. Once you have determined it, you may confidently conclude the investment avenue.

Mutual fund types, known as hybrid mutual funds, make investments across multiple asset classes. They typically consist of a mix of debt and equity assets, though occasionally, they may also contain gold or perhaps even real estate. The three fundamental tenets of hybrid funds are diversification, correlation, and asset allocation.

Types of Hybrid Funds

1.    Conservative Hybrid Funds

The conservative hybrid category of funds predominantly invests in debt instruments. The equity allocation for these funds can be anywhere between 10% to 25%, while the debt allocation ranges from 75% to 90%. These funds are suitable for low risk appetite investors who look for safety of capital first. Still, they are willing to take a small allocation into equities which will provide upside potential to the overall performance of the fund.

2.    Balanced Hybrid Funds

The balanced hybrid category invests about 40 to 60% of its assets in equities and the rest in debt. This means, at any given point, the balanced hybrid funds shall invest in 40% equities and 60% debt Or 60% equities and 40% debt Or any combination in between. Balanced hybrid funds are suitable for investors with a moderate risk profile, i.e., people who don’t want too big an exposure in a particular asset but don’t want too little exposure.

3.    Aggressive Hybrid Funds

Aggressive Hybrid Funds are the most popular categories in the hybrid space as it allows an investor to benefit from high returns from equity investments having some downside protection from debt investments. The objective of the aggressive hybrid category allows it to invest in equity instruments with an equity allocation of anywhere between 65% to 80% of the total assets while remaining goes into debt investments. This category is ideal for investors with an aggressive risk profile with a time horizon of more than five years.

4.    Dynamic Asset Allocation Fund / Balanced Advantage Funds

These allocations have been gaining popularity among investors because of their flexibility to move across asset classes with no limits fixed by the regulator. The distribution between equity and debt is “dynamically managed.” It’s “managed” because you get the services of a Fund Management Team that adds a flexibility layer and moves money across the asset classes. Additionally, it is “dynamic” since their usage of valuation models affects how they allocate resources. These funds usually allocate more to equities when valuations are cheap and less to equities when the valuations are expensive.

5.    Multi-Asset Allocation Funds

With a minimum deployment of 10% around each asset class, multi-asset distribution funds can dabble with at least three separate asset classes. This is a diversified fund category where the investments strategy moves across the asset classes depending on the market outlook and the valuations at which the asset is available. The multi-asset allocation fund is ideal for investors who understand the pros and cons of the different asset classes with an interest to their wealth with stability and diversification.

6.    Equity Savings Fund

Equity savings funds invest in equities, equity arbitrage, and debt. This is done to keep the minimum investment in equities at least 65%, as it will give favorable equity taxation. The equity savings fund also has a minimum allocation of 10% in debt, which allows for some downside protection along with the arbitrage component. This fund is most suitable for moderate investors who want downside protection but are generally okay with taking decent exposure to equities. We recommend this category of funds to investors who wish to debt plus returns and have a 3-year time horizon.

Hybrid Mutual Funds’ Benefits

  1.  One obvious benefit of hybrid funds is the ability to invest in various asset classes with just one fund. This makes it easier to build a balanced portfolio using just one investment.
  •  Another advantage of hybrid funds is the developed safety net of debt investments which keeps a portfolio steady during downturns in the market. This flexibility turns into a helpful risk management technique since the fund manager can alter the asset allocation of the hybrid fund depending on the circumstance.


One important thing to note that in any mutual funds, the fund manager keep typically 5%-10% in cash to meet out the redemption request. Thus, the balance amount of the fund gets invested as per the objective of the funds.

You, as an investor, need to consider a few things before making the final decision on whether or not to purchase hybrid funds.

Among them are the risk-reward ratio, the length of the investment, historical returns, capital gains tax, the investment objective, etc. Whether you invest for the short term or the long term with an aggressive strategy, hybrid funds’ mixed equity and debt components help you balance your current portfolio.

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