A Complete guide of Hybrid Funds

Hybrid Fund is an excellent option among investment options in Mutual Funds. What is the main philosophy behind Hybrid Fund, What are Hybrid Fund examples, and Should I invest in Hybrid Mutual Fund? What are the things to keep in mind before investing in the fund? It is essential to know about etc.

Hybrid funds are types of mutual funds that invest in securities of more than one fund. Mostly, these are a combination of equity and debt securities and sometimes they also include gold or real estate funds.

What is Hybrid Fund?

A hybrid fund is a classification of mutual funds or exchange-traded funds (ETFs) that invest in a variety of assets or asset classes to create a diversified portfolio. These funds are also known as asset allocation funds.

Balanced funds, which typically have 60% equity and 40% debt and bonds, are examples of hybrid mutual funds. These attempt to increase the value of your investment either through capital appreciation or through establishing a respectable level of return.

The key philosophies behind hybrid funds are –

  • Asset Allocation
  • Correlation and
  • Diversification

Asset allocation is the process of deciding how to distribute invested money among different asset classes and correlation is the co-movement of asset returns and diversification is having more than one asset in a portfolio.

Hybrid mutual fund schemes diversify investments within multiple asset classes to try and achieve maximum returns at the lowest possible risk.

These funds may offer different levels of risk tolerance ranging from conservative to moderate and aggressive. You can earn good money by investing in different types of Hybrid Funds.

There are many types of hybrid funds. A major part of the money invested in equity is called equity-oriented fund and if, it is invested in debt then it is called debt-oriented fund.

An equity-oriented fund offers higher returns, but the associated risks are also higher. Debt-oriented funds give low and stable returns, but the risk is also moderate and low.

They serve as a good entry point for new investors into the equity market, they can also be used to save for a specific medium term goal.

Examples of Hybrid Funds

1. Balance Funds

2. Arbitrate Funds

3. Dynamic Funds

4. Multi Asset Fund

The companies that make mutual fund schemes are called fund houses or asset management companies (AMCs).

The professionals who study the stock market and select companies to invest in are called fund managers.

Fund managers spend a lot of time analyzing the markets and studying various sectors of the economy to find out which companies are likely to generate profits in different time frames and make the best choices.

A Hybrid Fund seeks to create a balanced portfolio to provide regular income to its investors as well as capital growth over the long term.

The fund manager builds a portfolio as per the investment objective of the scheme and allocates funds in equity and debt instruments in varying proportions.

Should I invest in Hybrid Mutual Funds?

YesHybrid Mutual Funds are most popular for investment purposes and these funds provide moderate returns on your investment but before investing money, you should get basic information about them like:

  • Last 3 years performance of that fund.
  • What are the risk factors involved in the fund scheme?
  • What is the maturity period of the Special Fund?
  • Other factors depend on your investment goals and plan.

Capital appreciation is an important objective for hybrid mutual funds. These funds are less risky than equity mutual funds but more risky than debt funds.

Here, the returns will also be lower than equity mutual funds but higher than debt funds, so you should plan according to your financial goals. If you are looking to invest for medium term goals and objectives then Hybrid Funds are a good option.

Things you should consider before investing in hybrid funds

financial goals

You must be clear about your financial goals. One should go ahead with investing in Hybrid Funds only if the expected returns from the scheme are in line with your financial objectives. Before investing, be sure to get basic information about mutual funds.

investment horizon

Hybrid funds are considered ideal for investors with a medium to long-term investment horizon. One also benefits from the power of compounding if one stays invested for a long period of time.

risk factor

Investors with moderate risk appetite can opt for Hybrid Funds. Since they have substantial equity allocation, these funds bear market risk. However, the significant debt allocation ensures that exposure.

expense ratio

Expense Ratio refers to an annual fee. This is charged as a specific percentage on your investment returns. You should choose a fund which has a low expense ratio.

monitor performance

The best way to track the performance of hybrid mutual funds is to check their returns over several years. Choose a balanced fund that has shown consistent performance in both the up and down times.


Hybrid funds do not offer guaranteed returns. The performance of the underlying securities affects the Net Asset Value (NAV) of these funds. Hence, it may fluctuate due to market movements.

Hybrid funds are not completely risk free. It can be less risky than pure equity funds, so consider this before investing and choose a fund as per your investment potential.

For investors who want to take less risk, investing in hybrid mutual funds is one of the best options. But, it depends on the market risk, so before investing your hard earned money you must get the basic idea about your fund scheme.

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