Hybrid Mutual Fund | Meaning, Types & Benefits Explained

Hybrid funds can be defined as a type of mutual fund that invests in both equity (stocks) and debt (bonds) in a single portfolio. This mix gives you the benefit of growth from equities and safety from debt. These funds are perfect for people who want balanced returns with less risk. The fund manager decides how much to invest in each type based on the market. Hybrid funds are great for beginners or those who want to invest safely while still earning better returns than FDs. With these funds, you can explore a smart way to balance risk and reward in your investment journey.

What are Hybrid Funds? 

Hybrid mutual funds are an investment fund that spreads its assets across various sectors. Generally, these funds invest in stocks and bonds, but may also include other assets such as gold, international equities, real estate, IT, pharma, etc., in their portfolios. Diversification provided by hybrid funds can help control market risks and yield relatively stable profits instead of funds concentrating on a single asset class.

Features of Hybrid Funds

Below are the key features of hybrid funds:

Diversification

Investors can put their money into the equity market using hybrid mutual funds, as these offer a great level of diversification. It offers a broad portfolio of investments such as bonds, stocks, and other assets.

Long Term Performance

Hybrid funds are ideal for people who want to achieve their long-term investment goals, such as saving enough money to buy a car, house, or even retirement. They are good for big future plans and for people who can commit to investing for a lock-in period of 3 to 5 years.

Balanced Investment Funds 

Another amazing benefit of choosing hybrid funds is the balance they offer. They provide the best of all asset segments, helping investors achieve their financial goals without incurring much loss during market volatility. 

Types of Hybrid Mutual Funds

As per the Securities and Exchange Board of India (SEBI), there are 7 different sub-categories/types of Hybrid Mutual Funds.

1. Conservative Hybrid Fund

The Conservative Hybrid Fund requires you to allocate at least 10% to 25% of the total assets to Equity and Equity-related financial instruments and the remaining 75% to 90% can be allocated to Debt instruments.

The Debt asset class includes fixed income-generating securities such as treasury bills, corporate bonds, commercial papers, certificate of deposits and others.

2. Balanced Hybrid Fund

This Mutual Fund scheme invests a minimum of 40% and a maximum of 60% in both Equity and Debt asset classes. Investors that are looking for long-term capital generation can opt for a balanced Hybrid Fund, as the Debt financial instruments help to offset the risks posed by the Equity asset class.

3. Aggressive Hybrid Fund

Under this scheme, investors can invest a minimum of 65% and a maximum of 80% in the Equity asset class. The Debt asset allocation can be in the range of 20% to 35%. Here, there is a possibility to earn higher returns at a reduced risk, due to the allocation of Debt Securities in the portfolio.

4. Dynamic Asset Allocation/Balanced Advantage Fund

This type of Hybrid Fund is suitable for investors that want to automate asset allocation. These funds are dynamic in nature, which means you have the flexibility to shift 100% to Debt financial instruments or 100% to the Equity asset class. The asset allocation is decided based on the recommendation of the financial model deployed by the fund.

5. Multi-Asset Allocation Fund

This type of fund requires you to invest a minimum of 10% of its portfolio in at least three different asset classes, including Equity, Gold and Debt instruments.

6. Arbitrage Hybrid Fund

This Mutual Fund scheme follows an arbitrage strategy with a minimum of 65% investment in Equity and Equity-related instruments.

7. Equity Savings Fund

This is an open-ended scheme that invests in Equity, Arbitrage and Debt Securities. The minimum investment in Equity and Equity-related instruments should be % of the total assets and the minimum investment in Debt should be % of the total assets. The minimum hedged and unhedged investment needs to be stated in the Scheme Information Document (SID).

How do Hybrid Funds Work?

Hybrid funds invest majorly in two sectors: equities and debt securities. Equities usually yield higher returns but correlate highly with increased volatility, which is attributed to volatility caused by factors that cannot be anticipated in advance.

Debt securities earn much less than stocks as they are invested in less risky stable income and are backed by companies collateral. Investment in debt securities generally requires corporate collateral while stock investments don’t need such collateral since they are based on cash flows of an enterprise or those derived from it. Combining these two types of assets would decrease the overall risk of individual investments while boosting the expected return.

A hybrid mutual fund basically offers the advantages of both asset class in one single product. When the market is on a rise, profits from stocks increase; on the other hand, the presence of bonds ensures stability during times of low market. Depending on the purpose of the fund and market conditions, the manager maintains an appropriate balance between shares and obligations.

Advantages of Investing in Hybrid Mutual Funds

Hybrid mutual funds offer multiple benefits, making them a popular choice for many investors. Here's why you might consider them:

Balance & Stability

Compared to pure equity funds, where the goal is to invest in stocks with higher risk involved, hybrid funds provide a balance. Also, it reduces chances of such funds performing low by spreading its risk across debt assets and serves as an explanation for lower levels of volatility.

Potential for Capital Growth 

The equity portion of a hybrid fund has the potential to generate higher returns over the long term compared to debt funds. This can help you achieve your long-term financial goals, like retirement planning.

Reduced Volatility 

By combining equity and debt, hybrid funds experience lower volatility than pure equity funds. This means your investment value might not fluctuate much during market swings, offering some peace of mind.

Disciplined Investing with SIPs 

Investing in hybrid funds through SIPs allows you to invest a fixed amount regularly. This instills discipline and benefits from rupee-cost averaging, where you purchase units at different price points, potentially smoothing out market fluctuations.

Professional Management

Like other mutual funds, hybrid funds are managed by experienced professionals who make investment decisions based on market research and expertise. It allows you to benefit from their knowledge without the need to manage your portfolio yourself actively.

Why Should You Invest in a Hybrid Mutual Fund?

Investing in a hybrid mutual fund can be a smart choice because it combines equity and debt in a single plan, which means more growth and stability. These are less risky than pure equity funds but may give better returns than debt funds.

These are also ideal for investors who are looking to invest in funds that come with a moderate risk. The equity portion helps grow your wealth, while the debt part adds safety. You can use the fund to meet your long-term goals, like retirement or buying a home, along with diversification.

List of Top Hybrid Mutual Funds

1. ICICI PRU EQUITY & DEBT-G

ICICI Pru Equity & Debt-G is a hybrid fund offering flexible payment options with no withdrawal limit. It offers a diversified portfolio across numerous sectors, suitable for those looking for diversification and long-term capital growth.

2. HDFC BALANCED ADVANTAGE-G

HDFC Balanced Advantage-G is a popular hybrid fund that offers long-term capital income from two investment profiles: equity and debt. For potential returns, investors must invest for more than three years.

3. QUANT ABSOLUTE-G

Quant Absolute-G, an open-ended hybrid fund, offers freedom to investors with a zero lock-in period. The fund offers long-term returns with high-risk potential.

4. ICICI PRU MULTI-ASSET-G

ICICI Pru Multi Asset-G offers investors a good return generation as the fund invests across multiple sectors. The fund also provides investors with the benefit of a no lock-in period.

5. QUANT MULTI-ASSET-G

Quant Multi Asset-G is a top-ranked choice for investors with high-risk profiles. It is considered a good hybrid fund across multiple sectors with potentially high risk and decent returns.

6. ICICI Prudential Equity & Debt Fund*

This fund has an AUM of ₹43,159 Cr and has delivered 17.81% p.a. returns since inception. Recent performance includes 1-year: 10.68%, 3-year: 23.33%, and 5-year: 26.97%. It comes with a high risk but decent returns over time. The fund is ideal for those with a moderate to high risk appetite and long-term financial goals.

7. ICICI Prudential Multi Asset Fund Direct-Growth*

The fund comes with an AUM of ₹59,452 Cr and has delivered a strong long-term performance with 17.02% p.a. returns since inception. The latest returns are 1-year: 12.62%, 3-year: 22.82%, and 5-year: 25.65%. This fund invests across equity, debt, and commodities (like gold), making it a well-diversified option that helps reduce overall portfolio risk. The fund comes with a moderate risk and is suitable for investors looking for consistent long-term growth while protecting against market volatility.

*Disclaimer: All figures are as of 30 June 2025 and are subject to change. Past performance is not indicative of future results.

How to Invest in Hybrid Mutual Funds?

Are you prepared to put money in hybrid mutual funds for a balanced approach? Here’s how you can start investing:

1. Explore the different hybrid fund options made available by the various Asset Management Companies (AMCs) or online platforms doing so. Some of the things to consider are expense ratio, past fund performance, and the asset allocation (that is, how much is in equity and how much in debt) which suits the fund.

2. Choose an online investment platform, according to your research and preferences.

3. Sign up and complete the KYC details as needed.

4. Analyse and choose whether you need to invest a large sum all at once (lump sum) or disperse it over a time interval using an SIP. This decision should be made taking into account your available money for investment and how much risk you are ready to take.

5. After selecting your platform and completing the KYC details, you can invest in hybrid funds.

6. Always monitor your portfolio's performance and periodically adjust it (changing the distribution of assets) to ensure it remains at the desired level of risk.

 How to Pick the Best Hybrid Mutual Fund?

• Identifying the right hybrid mutual fund involves considering your investment objectives like retirement or home buying, not to mention your risk tolerance.

• Study the fund manager’s experience and the past performance of the hybrid fund you have chosen.

• Consider adding several more hybrid funds taken from different classes to enhance diversification in your portfolio.

Tax Implications on Hybrid Funds

Hybrid mutual funds are eligible for taxation benefits if they invest at least 65% in equity or equity-oriented securities. Below the 65% mark, it will be considered a debt scheme for taxation. The tax will be 10% for long-term gains exceeding 1 Lakh and 15% for short-term gains. For long-term gains other than equity-oriented hybrid funds, the rate is 20%, while the tax on short-term gains is based on an investor’s slab.

Taxation Rules of Hybrid Mutual Funds

Hybrid funds are taxed based on their allocation of equity and debt. If the equity allocation is more than 65%, they are taxed like equity funds.

Equity component

• If held for more than 1 year, Long-term capital gains (LTCG) above ₹1 lakh are taxed at 10% without indexation.

• Short-term capital gains (STCG) are taxed at 15%.

Debt component

If the equity allocation is less than 65%, they are taxed like debt funds.

• Long-term (over 3 years) and short-term gains are both added to your income and taxed as per your slab rate. 

Hybrid Funds Related FAQs

What Is An Equity Hybrid Fund?

An Equity Hybrid Fund is a type of Mutual Fund that invests in a mix of equity and debt instruments to balance risk and reward. It offers growth potential through equity exposure while providing stability through debt investments. This investment is perfect for investors who are looking for long-term capital appreciation with moderate risk. The Hybrid Equity Fund is a popular investment option, offering equity growth and debt stability to meet various financial goals.

What Are Hybrid Mutual Funds?

The hybrid mutual funds invest in both equity (stocks) and debt (bonds) to balance growth and stability. They are suitable for investors who want moderate risk, steady returns, and long-term wealth creation.

Are Hybrid Funds Good Investments?

Hybrid funds can be good investments for those seeking a balance between growth (equity) and stability (debt) with moderate risk.

Is it Safe to Invest in Hybrid Mutual Funds?

Yes, Hybrid mutual funds offer more stability than pure equity funds but still carry some risk.

Which Is The Right Hybrid Mutual Fund In India?

The choice of a hybrid mutual fund depends on your financial goals, risk tolerance, and investment horizon. It is important to compare factors such as past returns, expense ratios, and fund ratings before investing.

What Are The Advantages Of Hybrid Funds?

Hybrid mutual funds offer diversification by combining equity and debt, reducing risk. They provide more stability than pure equity funds and the potential for higher returns than pure debt funds, making them suitable for investors seeking a balanced approach.

What Are The Main Features Of A Hybrid Fund?

The main features are diversification, professional management, flexible asset allocation, and medium risk. They aim to balance growth and safety, making them ideal for first-time investors and those seeking steady performance.

What Is The Difference Between Hybrid And Debt Mutual Funds?

Hybrid funds invest in both equity and debt, balancing growth and safety. Debt mutual funds invest mainly in bonds and fixed-income securities, focusing on stability and lower risk rather than high growth.