Hybrid Mutual Funds

What is Hybrid Mutual Fund? Who Should Invest in Hybrid Mutual Funds?

Broadly speaking, investments may be categorized into three groups based on risk: first is high-risk ‘Equities’, second category is ‘Debt’, and the third is ‘Hybrid’ investments. Most investment consultants advise clients to create an investing plan based on their financial goals, risk tolerance, and investment horizon.

However, it is difficult to classify investors as either high-risk or low-risk takers since every individual has different needs and objectives. Mutual funds that are hybrids can be useful here.

What are Hybrid Funds?

Hybrid Mutual Funds is like an all-rounder player in cricket. They are a mix of debt and equity investments made to achieve the scheme’s investment goal.
Every hybrid fund targets a distinct investor base and consists of a varied mix of debt and equity.

Features of a Hybrid Fund:

The major characteristics of a hybrid fund are listed below:


Its diverse portfolio, which consists of other assets in addition to debt and stocks, is part of its investment strategy. It is possible to invest in several asset types with a single fund.

Balanced Strategy

Because of their well-balanced portfolio, hybrid funds can benefit from the greatest features of all asset classes. Its goal is to help you achieve your long-term and short-term financial goals by offering higher returns at reduced risk. While debt securities offer protection from market fluctuations, equity components play a role in the long-term creation of wealth.

Different Investment Combinations

Different hybrid fund types have varied debt-to-equity proportions. They are designed to cater to the monetary needs and investment goals of different kinds of investors. It also takes into account the varying risk tolerance of investors, which might be conservative, moderate, or aggressive.

Long-Term Performer

For investors who can commit to owning the units for a minimum of three to five years, the hybrid fund investment is suitable.

Types of Hybrid Mutual Funds:

Hybrid Mutual can be classified into the following types:



Conservative Hybrid Funds

Conservative Hybrid Funds normally invest between 10% and 25% of the total corpus in equity and the balance 75-90% in debt.

Aggressive Hybrid Funds

Aggressive Hybrid Funds are exactly the opposite of Conservative Hybrid Funds. Such type of funds, i.e. Aggressive Hybrid Funds will have between 65-80% exposure in equity and the remaining in debt.

Multi-Asset Allocation Funds

These funds combine at least 3 asset classes into a single fund. For example, equity, debt, and gold are a classic combination of a multi-asset allocation fund. These funds invest at least 10% in each asset class.

Dynamic Asset Allocation Hybrid Funds


These funds are based on the discretion of the fund manager and the allocations can go from 0% to 100% in debt and from 0% to 100% in equity according to the market conditions and economic scenario.


Arbitrage Funds


These schemes invest 65 to 100% in equity assets and 0 to 35% in debt asset classes. Arbitrage funds purchase stocks at a lower price in one market and sell them at a higher price in another. The fund manager constantly looks for arbitrage opportunities and maximizes the fund’s returns.

If good arbitrage opportunities are not available, the fund invests primarily in debt securities and cash. These funds are considered to be as safe as debt funds. However, long-term capital gains are taxed like equity funds.

Equity Saving Fund




These types of funds invest 65 to 100 % in equity assets and 0 to 35 % in debt asset classes. These funds try to balance risk and returns by investing in equity, derivatives, and debt. Derivatives reduce directional equity exposure, thereby reducing the volatility and generating a stable return. The equity asset provides growth and debt, and derivative provides the regular stable returns.

Why Should You Invest in a Hybrid Mutual Fund?

The following are some advantages that Hybrid Funds provide so that you may begin investing in them:

  • Compared to debt funds, hybrid funds are thought to be riskier, but safer than equity funds. They are favored by many low-risk investors and typically deliver higher returns than debt funds.
  • Hybrid funds are also often chosen by beginners who are hesitant to enter the stock markets. They may test the equity while having stability provided by the Debt component.
  • With hybrid funds, investors may protect themselves against excessive market volatility while still getting the most out of their stock investments.
  • There is active risk management in Hybrid Mutual Funds through portfolio constant diversification and asset allocation. Fund Managers manage risk by combining non-correlated asset classes like equity, debt, gold, and even derivatives.

Also Read – Understanding the importance of Asset Allocation in Investments


Hybrid Mutual Funds are for various risk tolerance levels, from conservative to moderate and moderate to aggressive. Investors with different time frames can also consider Hybrid Mutual Funds.
It can be a very good starting point for investors in the equity market.

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