Hybrid funds have gained popularity among investors seeking a balance between growth and income. These funds invest in a mix of equities and debt securities, providing stability and diversification to investment portfolios. However, in the realm of mutual funds, there exists a multitude of categories, which can be overwhelming for individual investors. Within the hybrid funds category, India offers six distinct types, each with its unique investment style. Investing without a thorough understanding of these funds could adversely affect your portfolio.
In this blog, we will delve into the concept of hybrid funds, explore the various types categorized by SEBI (Securities and Exchange Board of India), and discuss the advantages they offer to investors.

What are Hybrid Funds?

Hybrid funds, as the name suggests, combine the investment potential of both equities and debt instruments. By diversifying their holdings, these funds aim to strike a balance between growth and income. The income generated from debt instruments provides stability to the returns, while equity investments offer the potential for capital appreciation. Let’s explore the types of hybrid funds and their characteristics.

Types of Hybrid Funds:

Arbitrage Fund: Arbitrage mutual fund aims to generate profit from price difference of derivatives and cash market. It is one of the very low risk products amongst hybrid categories. Generally, institutions and HNI clients prefer arbitrage funds as a money parking option for the short term as this fund qualifies for equity taxation. This utilizes the arbitrage approach to capture profits by buying securities at a lower price and selling them at a higher price in different markets. Requires a minimum of 65% investment in equity and equity-related instruments. The minimum investment horizon should be around 3 months.

Conservative Hybrid Fund: Conservative hybrid funds primarily allocate a significant portion of their investments to debt securities, typically ranging from 75 to 90 percent. While they do invest in equities, the allocation in this asset class usually falls within the range of 10 to 25 percent. These funds are well-suited for risk-averse investors seeking capital safety and looking to diversify a smaller portion of their portfolio into equities. The ideal investment horizon should be 2 to 3 years.

Aggressive Hybrid Fund: These mutual funds primarily focus on investments in equities or equity-related schemes. These funds typically allocate between 65% and 80% of their assets to equity, while the remaining portion is invested in debt or liquid securities. This balanced asset allocation helps mitigate the impact of market downturns, as the investments in debt or liquid securities can help offset any losses incurred in the equity portion of the fund. A suitable investment horizon is 5 years plus.

Dynamic Asset Allocation or Balanced Advantage Fund: These funds invest in both equity and debt, with a flexible allocation that is not fixed in a specific ratio. Fund managers adopt a dynamic approach to managing the allocation between equity and debt, responding to prevailing market conditions. Here fund managers can have a flexible allocation ranging from 0% to 100% in both equity and debt instruments. Suitable investment horizon is around 3 years plus.

Multi Asset Allocation Fund: These funds follow a diversified allocation strategy, encompassing investments in equity, debt, and other securities like gold and commodities. It requires a minimum allocation of at least 10% in each asset class, with investment in at least in three asset classes. As a result, they are well-suited for investors with a low-risk appetite seeking stable returns. The inclusion of various asset classes helps to mitigate risk and provides a balanced approach to investment, making them an attractive option for those seeking a conservative investment option.

Equity Savings: This fund allocates a substantial portion, ranging from 65% to 90%, into equity and equity-related assets. Additionally, a minimum of 10% is invested in debt, serving as a protective measure against market volatility. Due to the dominant equity component, investors can expect moderate to high returns. The presence of debt and arbitrage elements provides a cushion for investors during market swings. If you consider yourself a moderate risk-taker, these funds can be an ideal investment option for you.

Benefits of Investing in Hybrid Funds:

Diversification: Hybrid funds provide diversification by combining different asset classes, reducing the impact of market volatility on overall returns.

Balanced Risk and Return: These funds offer a balanced risk profile, making them suitable for investors seeking a middle ground between pure equity and debt funds.

Wealth Creation: Hybrid funds aim to generate better returns than pure debt funds while mitigating the risks associated with pure equity funds.

Opportunity for Asset Class Exposure: Investing in hybrid funds allows investors to access and benefit from diverse asset classes across various markets.


Hybrid funds offer investors the advantage of a diversified portfolio with a balanced mix of equities and debt instruments. With different categories catering to varying risk appetites and investment objectives, hybrid funds provide stability, growth potential, and the opportunity to build wealth over the long term. Whether you are a conservative investor seeking stable income or an aggressive investor aiming for capital appreciation, hybrid funds can be a valuable addition to your investment portfolio but never make investment decisions in isolation with a single product. Instead, consider holistic financial planning with a qualified financial advisor to create long-term wealth.


Mutual Fund Scoring and Ranking

Mutual Fund Scoring and Ranking

A holistic analysis of your funds, understand if your mutual fund is aligned to your needs