investify logo
Hybrid Mutual Funds

Equity and Debt are the two most important investment options. Hybrid Mutual Funds are the third type of investments which not many people are aware of. Investors have a different risk appetite and it is difficult to classify them as high-risk or low-risk takers. Hybrid Funds come in to serve the purpose of a vehicle that balances the best of the two. We seek to investigate more about the Hybrid Mutual Funds meaning and relevance in this analysis.

What are Hybrid Mutual Funds?

Hybrid Mutual Funds invest in Equity and Debt instruments. Besides reducing risk, assets are. Subsequently, it gives higher returns. Not as risky as equity funds. For this reason, Hybrid funds are selected on the basis of certain parameters.


How do hybrid funds work?

Hybrid Funds offer capital appreciation in the long-term and income generation in the short-term by creating a balanced portfolio. The fund manager allocates the investor's money as per investment objectives. Furthermore, there can be different proportions of debt and equity allocations. The manager can buy or sell securities as per the market trends.

Click here to know about how to assess the risk of your investment portfolio.


Start Saving, Investing & Planning by Installing our FREE APP!

Want to get a Free Mutual Fund Portfolio Review?

Enter your details and request a Free Callback!

Types of Hybrid Mutual Funds

Hybrid funds are classified on the basis of their asset allocation. Typically, some hybrid funds allocate largely towards equity and some towards debt. We discuss some of them below,

1. Debt-oriented Balanced Funds: Accordingly over 65% of assets are allocated towards debt instruments by the fund manager, the fund is termed debt-oriented. It invests majorly in government securities, bonds, treasury bills, etc.

2. Equity-oriented Balanced Funds: Accordingly over 65% towards equity instruments by the fund manager, the fund is termed equity-oriented. It invests majorly in FMCG, Healthcare, Real Estate, etc.

3. Arbitrage Funds: An Arbitrage fund manager buys the stock at a lower price in one market and sells it at a higher price in another market. He maximizes the returns from this.



1. Diversification: Hybrid Funds diversify the risk as it is a mixture of equity and debt funds. When the market goes down, the debt funds provide stability. Equity and debt are inversely related. So when the market has a bull run, these funds do not do well.

2. Balances the Risk and Returns: Hybrid Funds balances the risk and returns. The equity segment gives good returns and the debt segment gives stable returns at a lower risk. Investors should pick the right fund for their goals. Aggressive Hybrid Fund will invest over 75% in equity and remaining in debt. Conservative Hybrid Fund will invest 10% to 25% of its assets in equity.

3. Good for New Investors: Hybrid Funds are ideal for first-time investors. It will give an exposure to equity while providing a buffer against abrupt losses.

4. Great Returns: Hybrid Funds have performed better than equity funds in the past few years. In many instances, Hybrid Funds have given better returns than large-cap funds.

5. Risk Management: These funds provide risk management through portfolio diversification and asset allocation. They manage the risk by mixing two unrelated asset classes i.e. equity and debt.

Hybrid mutual funds


1. Risks are involved: Nevertheless hybrid mutual funds carry a risk. It is contrary to the myth that there is none. Two kinds of risks affect hybrid funds, stock price fluctuation, and interest rates. When stock prices fall, NAV’s fall in proportion to the equity of the fund. When interest rates rise, NAV’s fall.

2. Incomparable: Hybrid Funds have a problem of not being comparable for the returns. Ordinary funds can be compared with Sensex or Nifty. Conversely, Hybrid funds cannot be compared to any indices. They are comparable only with other hybrid mutual funds.

3. No Flexibility: Hybrid Funds do not give the flexibility to alter the course of investment as per your changing goals. You cannot reduce your exposure to equity in Hybrid funds.


Who should invest in Hybrid Mutual Funds?

Hybrid Funds are safer than equity funds. Above all, higher returns are obtained in comparison to normal debt funds. It is preferred amongst conservative investors. New investors who wish to get exposure to equity markets can invest in this. The presence of an equity component can give higher returns as a potential. The debt component gives a buffer against market shocks and ensures stable returns.

Hybrid Mutual Funds

Factors to consider before investing

1. Returns: Hybrid Funds don’t offer assured returns. Underlying stock performance determines the NAV of these funds. It can suffer fluctuations due to market movements.

2. Risks: It is unfair to assume that hybrid funds are risk-free. Any fund which has an equity component in them has a certain risk involved. Portfolio rebalancing is certainly advised.

3. Investment Duration: It is suited for a 5 year investment period. Investors wanting a risk-free return can choose an arbitrage fund that is based on the priced differential in two markets.

4. Expense Ratio: Hybrid Funds charge an expense ratio for managing your portfolio. Investors need to ensure that their fund charges the lowest expense ratio to have maximum returns.

5. Financial Targets: Investors can book their intermediate profits from hybrid funds and go for buying a car or house.


Taxation of Hybrid Mutual fund


Equity Component

  • Long Term Capital Gains(LTCG): 10% without indexation.
  • Short Term Capital Gains(STCG): 15%.

 Debt Component

  • LTCG: 20% after indexation, 10% without the benefit of indexation.



Undoubtedly, hybrid Mutual Funds are an attractive investment option for budding investors. These funds have an equity component as well as a debt component. It helps in balancing the risk and enabling returns. The market is subject to rising or fall depending upon a lot of factors.

Hybrid Funds generate returns as an equity element is added. The debt component ensures stable returns during the bear market. There many types of hybrid funds available in the market. Hybrid equity-oriented mutual funds and hybrid debt-oriented mutual funds are sub-categories of Hybrid funds. They have varying levels of asset investment in equity and debt.

As a result, hybrid mutual funds in India is seeing a growth in recent years. One must evaluate and choose the ideal fund suited for their investment needs. Hybrid Funds in mutual funds niche are a good source of income generation but it is subject to a lot of factors. One has to ascertain their risk appetite, financial goal, and duration of investment before deciding to invest.


Start Saving, Investing & Planning by Installing our FREE APP!

Want to get a Free Mutual Fund Portfolio Review?

Enter your details and request a Free Callback!

Open chat
Chat 24x7
Hello, Greetings from

Would you like to get a free portfolio review?

Or just ask us anything.. we will reply within minutes!