What are Hybrid Mutual Fund

What are Hybrid Mutual Fund

Learn About Hybrid Funds - Meaning, Types, Features, Benefits, and Top 10 Funds

When investors think of an investment plan, they curate it based on their risk appetite, financial goals, and investment portfolio. When it comes to risk, there are three types of investments. Equity investments come with high risks and high returns, debt funds come with low risks and low returns, and the third category is hybrid funds which are a combination of both.

Everyone has different needs and ambitions, and hybrid ones consider the requirements of the investors based on their risk tolerance and objectives. Here we will learn everything about hybrid funds and how they can benefit investors.

What is Hybrid Fund?

A hybrid fund combines equity and debt funds to achieve an investor's investment objectives. A hybrid fund invests in multiple asset classes like equity stocks and debt, sometimes even gold and real estate. Investing in hybrid mutual funds is to diversify your investment portfolios and minimize the associated risks.

Like they say, 'Never put all your eggs in one basket, hybrid mutual funds are the perfect way to invest in low-risk but high-returns generating funds by maintaining a combination of various asset classes. Hybrid funds have the quality of being less risky than equity funds and generating higher returns than debt funds.

These funds are about appropriate asset allocation, correlation (collective movement of asset returns), and diversification by investing in multiple assets in a portfolio.

Who Should Invest in Hybrid Mutual Funds India?

If you are new in the field of stock market investments or a risk-aversive investor who wants to generate maximum returns, then hybrid mutual funds are for you.

These are the balance between debt and equity funds, wherein they are riskier than debt funds generating higher returns and comparatively less risky than equity funds. The liability component of hybrid mutual funds provides stability and allows investors to get the most out of their equity investments while hedging against extreme market volatility.

Advantages Of Hybrid Mutual Funds India

The benefits of hybrid mutual funds are:

  1. You get access to multiple asset classes in one fund rather than investing in different funds to meet the needs of different asset classes.
  2. Hybrid funds allow you to invest in equities, bonds, gold-related products (including ETFs), and other asset classes (where permitted), depending on the type of fund and investment objectives.
  3. These funds provide exposure to different asset classes and reduce the cost of investing in each class-based asset fund.
  4. It is about proactive risk management through balanced asset allocation and portfolio diversification.
  5. The risk is managed by combining uncorrelated asset classes such as stocks and bonds.
  6. When it comes to diversification, hybrid mutual funds venture into various asset classes and also their subclasses by investing in large-cap, mid-cap, small-cap, value, or growth stocks.
  7. These funds are highly suitable for different risk profiles, from conservative to moderate to aggressive.
  8. Hybrid funds also allow you to rebalance your investment portfolios by buying low and selling high. The fund manager rebalances the portfolio and adjusts the asset allocation within acceptable limits. As a result, certain asset classes are sold when prices are high and bought when prices are low.
  9. You get the benefit of each asset class, for example, the long-term capital investment gains from equities, the stability and low volatility of debt funds, the safe-haven nature of gold, and the high liquidity offered by cash.

Types Of Hybrid Mutual Funds India

Hybrid funds can be categorized into the following types:

Equity-Oriented Hybrid Mutual Funds

Equity-focused hybrid funds invest at least 65% of total assets in equity funds and the remaining 35% in debt securities and money market instruments.

Debt-Oriented Hybrid Mutual Funds

Debt-focused hybrid funds invest at least 60% of total assets in debt funds such as bongs, corporate, and government bonds. The remaining 40% will be invested in equities. Some funds also invest a small portion of their body in liquid assets.

Balanced Hybrid Mutual Funds

These funds invest at least 65% of their total investment in equities and the remainder in liabilities and cash. For tax purposes, they are considered equity funds and offer tax exemption for long-term capital gains up to INR 100,000. Arbitrage trading is not allowed in schemes in this category.

Aggressive Hybrid funds

These funds should invest a minimum of 65% and a maximum of 80% in the equity asset class and 20-35% in the debt asset class. With less allocation to external capital, high returns can be obtained with low risk.

Dynamic Asset Allocation

These systems allow you to switch between 100% debt and 100% equity investments. Asset allocation is determined based on the recommendations of the financial model used by the fund.

Conservative Hybrid Mutual Funds

These funds should invest 10-25% of total assets in equity funds, and the remaining 75-90% be invested in debt funds. The purpose of these funds is to generate income with the lowest risk possible, using a small equity component to drive total returns.

Arbitrage Fund

An arbitrage fund buys stocks in one market at a lower price and sells them in another at a higher price. Fund managers are constantly looking for arbitrage opportunities to maximize their fund returns. The hybrid fund invests primarily in bonds and cash. These investments are low-risk, but the long-term capital gains will be taxed like mutual funds.

Factors to Consider Before Investing in Hybrid Mutual Funds India

Consider the following important things before investing in hybrid funds in India:

Risk and Return Evaluation

Hybrid funds have investment risk proportional to the portfolio's asset allocation. Therefore, it is important to carefully analyze your system portfolio to fully understand the associated risks.

You must know what stocks the fund owns (balance of equity and debt), which helps you better understand the risks. Plus, you'll get an idea of the returns you can expect.

Financial objectives

Before investing in hybrid mutual funds, you must analyze your primary goal. If you want less risk, then stick to debt funds. If you want higher returns irrespective of the high risk, go with equity funds, but if you are a careful investor who wants the best of both worlds, stick to hybrid funds.

Time Horizon

Hybrid funds are good for medium-term time horizons, say 3-5 years. The longer the term, the more likely you will get stable and high returns.

Investment Charges

Like all other mutual funds, hybrid mutual funds charge fees known as expense ratios. High expense ratios affect fund returns, but high expense ratios do not always translate into lower returns.

Investment Strategy

You need to count on a fund manager who helps you with the percentage of each asset and the investment style. Investors have no control over how the various components are selected or combined.

Tax Calculation

Here is how tax is calculated for hybrid mutual funds:

  • For the equity funds, the taxation policy remains the same. Long-term capital gains (LTCG) of more than INR 1 lakh are taxed at 10%, and short-term capital gains (STCG) are taxed at 15%
  • The capital gains are added to your income for the debt funds and taxed as per the applicable income tax slab. LTCGs from the debt component are taxed at 20% after indexation and 10% without indexation benefits.

How To Choose The Best Hybrid Mutual Funds in India

You must invest in hybrid funds based on return consistency, risk appetite, fund management team, investment corpus, and expense ratio.

The best hybrid mutual funds consistently rank high, but before you invest in them, you must know how long they've been around and how their performance has changed over time. Let us look at the top hybrid mutual funds in India.

The 10 Top Hybrid Mutual Funds in India

Fund Name Risk 1Y Returns Rating Fund Size(in Cr)
Quant Absolute Fund Very High 14.2% 5 INR 762
Quant Multi Asset Fund Very High 13.2% 5 INR 428
ICICI Prudential Equity & Debt Fund Very High 11.3% 5 INR 21,109
Mahindra Manulife Hybrid Equity Nivesh Yojana Fund Moderately High 7.6% 5 INR 571
Baroda BNP Paribas Aggressive Hybrid Fund Very High 6.3% 5 INR 800
Mirae Asset Equity Savings Fund Moderately High 4.7% 5 INR 588
Kotak Debt Hybrid Fund Moderately High 5.0% 5 INR 1,601
Edelweiss Equity Savings Fund Moderately High 4.8% 5 INR 277
Canara Robeco Conservative Hybrid Fund Moderately High 4.3% 5 INR 1,143
ICICI Prudential Regular Savings Fund Moderately High 5.8% 5 INR 3,303


A hybrid mutual fund is a type of mutual fund that invests in multiple asset classes, where risk tolerance, asset allocation, and diversification are key philosophies. Hybrid mutual funds are the best option to generate capital returns through balanced equity and debt allocation.

These funds help you to reduce volatility through portfolio leverage elements, offer a range of risk tolerances, and serve as an excellent beginning for new investors in the stock market.

Frequently Asked Questions

How are hybrid funds different from balanced funds?

Hybrid funds are a combination of multiple asset classes, which include bonds/deposits, stocks, and commodities (gold) type securities. A balanced fund is a type of hybrid fund which invests equally in equities and commodities like FDs. These funds offer growth, low risk, and stability.

What do hybrid mutual funds invest in?

Hybrid mutual funds are also called mixed funds, which invest in stocks and bonds and give the benefit of both.

What is the goal of hybrid mutual funds?

Hybrid funds aim to build balanced portfolios to provide investors with medium- to long-term capital growth and regular income. It includes two or more asset classes with different proportions according to the plan's investment objectives.

Is it safe to invest in hybrid mutual funds?

Hybrid funds are perfect for first-time investors who don't want to worry about their asset allocation.

Are hybrid mutual funds better than equity funds?

Typically, equity funds are for investors with a high appetite for risk, while debt funds are for investors who want to take a moderate risk and generate higher returns. Hybrid funds are for investors looking to achieve the best of both worlds.