What Are Hybrid Mutual Funds?

Features of a Hybrid Mutual Fund

• Diversified Portfolio: Hybrid funds allocate investments across multiple asset classes—primarily equity and debt, and occasionally alternative assets like gold or Real Estate Investment Trust (REITs)—to create a balanced portfolio.
• Risk Moderation: The debt component acts as a stabilizer, helping to lower overall portfolio risk compared to investing solely in equity funds.
• Active Asset Allocation: Some funds adjust their equity-debt mix dynamically based on market conditions (e.g., Balanced Advantage Funds).
• Goal Flexibility: Suitable for both short- and long-term goals depending on the fund type.
• Tax Efficiency: Depending on the equity exposure, taxation may be similar to equity or debt funds.

Hybrid Mutual Funds Types

• Conservative Hybrid Fund: Equity: 10–25%, Debt: 75–90%. Ideal for: Low-risk investors looking for regular income with limited equity exposure.
• Balanced Hybrid Fund (Rarely offered): Equity & Debt: 40–60% each. Balanced allocation with moderate risk.
• Aggressive Hybrid Fund: Equity: 65–80%, Debt: 20–35%. Ideal for: Investors seeking higher growth with some safety net.
• Dynamic Asset Allocation / Balanced Advantage Fund (BAF): The mix of equity and debt changes automatically depending on market conditions. Managed actively based on market signals and valuations.
• Multi-Asset Allocation Fund: Allocates funds across a minimum of three different asset classes (e.g., equity, debt, commodity, and REITs & INVITs). Ideal for diversification lovers.
• Arbitrage Fund: Uses price differences in the cash and futures market to generate low-risk returns. Ideal for short-term investments with the added benefit of tax efficiency.
• Equity Savings Fund: Mix of equity, arbitrage, and debt. Aims for moderate returns with lower volatility.

How Does a Hybrid Mutual Fund Work?

Hybrid funds allocate a predefined portion of your investment into different asset classes. Here's how they function:

• Equity component aims to generate capital growth.
• Debt instruments provide income stability.
• Fund managers may rebalance the portfolio based on market conditions or fund mandates.
• Some use derivatives or arbitrage to enhance returns or manage risk.

This dynamic blend helps to smooth returns and manage risk effectively.

How to Invest in Hybrid Mutual Funds

• Assess Your Risk Profile: Choose a type of hybrid fund (conservative, aggressive, BAF, etc.) that aligns with your risk appetite.
• Match with Investment Horizon: Short term (1–3 years): Consider Arbitrage or Conservative Hybrid Funds. Medium to long term (3–5+ years): Go for Balanced Advantage or Aggressive Hybrid Funds.
• Invest via SIPs or Lumpsum: SIPs work well for rupee cost averaging; lump sum is suitable during market corrections.
• Diversify Further: Use hybrid funds as a core holding in your portfolio to reduce overall volatility.
• Monitor Regularly: Hybrid funds are not "set and forget"—review performance and asset mix periodically.

Key Benefits of Hybrid Mutual Funds

• The process of diversification: By providing immediate diversification across several asset classes, hybrid funds lessen reliance on the performance of a single market niche.
• Reduced Volatility: Compared to pure equity funds, hybrid funds typically offer a more stable return profile by reducing market volatility through the combination of fixed income and equity.
• Expert Management: Experienced fund managers actively rebalance the portfolio in response to market fluctuations, guaranteeing optimal allocation for these funds.
• Adaptable Risk Profiles: Investors can choose from a variety of risk and return combinations offered by hybrid funds, ranging from conservative to aggressive, depending on their risk tolerance.
• Systematic Investment Plans: Systematic Investment Plans (SIPs) encourage disciplined and gradual investing, and investors can begin with them for as little as ₹500 per month.

How to Choose the Right Hybrid Fund

• Your Investment Goal: Decide if you want to invest for capital preservation, income, or growth.
• Appetite for Risk: Risk-takers should invest in aggressive funds, while cautious investors should use conservative ones.
• Fund Performance: Consider more than just short-term gains; consider long-term performance. Compare with peer funds and benchmark indices.
• The ratio of expenses: More of your returns will remain with you if your expense ratio is lower.
• Track Record of Fund Managers: Select funds with a solid track record of sound decision-making and a consistent fund manager tenure.
• Strategy for Allocating Assets: Recognize if the fund has a dynamic allocation (like BAFs) or a fixed allocation (like aggressive hybrid).

Taxation Rules of Hybrid Mutual Funds

Equity-Oriented Hybrid Funds (with ≥65% equity exposure):

• Short-Term Capital Gains (STCG): Short-Term Capital Gains are taxed at 15% when the investment is held for less than one year.
• Long-Term Capital Gains (LTCG): Long-Term Capital Gains (LTCG) are taxed at 10% on gains exceeding ₹1 lakh if the investment is held for more than one year.

Debt-Oriented Hybrid Funds (with <65% equity exposure):

• All gains (short or long-term) are taxed as per your income tax slab, post April 2023.

Dividend Income: Taxed at the applicable slab rate in the hands of the investor (Dividend Distribution Tax removed).

Are Hybrid Mutual Funds Right for You?

For investors who want to strike a balance between risk and return, hybrid mutual funds are a great option. They are appropriate for moderate investors or those who are new to mutual funds because they provide the stability of debt with the growth potential of equity.

With the option to select from a range of types, including multi-asset, balanced advantage, aggressive, and conservative funds, hybrid funds can accommodate a number of time horizons and financial objectives. Before making an investment, you should evaluate your goals, time horizon, and risk tolerance, just like you would with any other.

Platforms like Risify offer tools, comparisons, and professional insights to assist you in choosing the best hybrid fund based on actual data, not just popularity, if you're not sure where to begin.

Why Choose Hybrid Mutual Funds from Risify?

• Balanced Growth & Stability: Hybrid mutual funds offer a mix of equity and debt, ideal for moderate risk-takers.
• Personalized Recommendations: Get fund suggestions based on your goals, risk profile, and investment horizon.
• Top Fund Selection: Access the best hybrid mutual funds, including aggressive and conservative hybrid funds.
• Expert Guidance: A dedicated Risify Relationship Manager helps you choose the right fund with ease.
• Smart Online Tools: Compare returns, track performance, and plan SIPs—all in one place.
• Trusted & Transparent: Backed by research, we bring only top-rated, reliable funds to your portfolio.

Hybrid Mutual Fund FAQs – Risify

• Are hybrid funds good for beginners? Yes, they are ideal for first-time investors as they offer a balance between risk and return through diversified exposure.
• Can I lose money in a hybrid fund? Yes, while the debt portion cushions losses, the equity component can lead to short-term volatility and potential losses.
• What is the minimum investment in a hybrid fund? You can start with as little as ₹500–₹1,000 via SIP or ₹5,000 in lump sum, depending on the AMC.
• How is asset allocation decided in hybrid funds? It's defined by the fund’s category or strategy. In dynamic funds, allocation changes based on market conditions.
• Is rebalancing done automatically? Yes, the fund manager handles rebalancing based on the scheme’s investment mandate.
• Still unsure which hybrid fund suits your goals? Connect with a Risify advisor for personalized guidance and smarter investment decisions.