6 June 2025
Mutual Funds
6 Minutes Read

What are Hybrid Mutual Funds? 

💡 Quick Answer
A hybrid mutual fund invests in a mix of equity, debt and sometimes gold to balance growth with stability. The Securities and Exchange Board of India (SEBI) classifies them into categories such as conservative, balanced, aggressive, dynamic asset allocation and arbitrage funds, each with a different equity-to-debt ratio and risk level.

Investors are consistently looking for investment options that will offer a balance between risk and return. But some people find it hard to choose equity and debt instruments; hybrid mutual funds are the best solution for them. These funds will offer a diversified portfolio by combining both equity and debt components.

In this blog, we’ll explain what is hybrid mutual fund, its types, taxation, benefits and how to get started in detail. Let’s dive into the blog!  

What are Hybrid Mutual Funds? 

Hybrid mutual fund is a type of investment scheme that allows the investor to invest in a mix of equity (stock), debt (bonds), and other assets like gold. The major aim of this fund is to create a balanced portfolio with growth along with the stability of debt instruments. Investors who are looking for moderate risk with reasonable returns are suitable for investing in these funds.  

In a simple word, hybrid mutual funds’ meaning lies in their ability to adapt to various market conditions by managing asset allocations.  

Types of Hybrid Mutual Funds

The Securities and Exchange Board of India (SEBI) has classified hybrid mutual funds into various categories they are listed below; 

Conservative Hybrid Funds 

Invest around 75-90% in debt and remain in equities. And it is suitable for low-risk investors. 

Balanced Hybrid Funds 

Maintain 40% to 60% in both Equity and Debt, aim is for balanced growth and income. 

Arbitrage Funds 

These funds utilize price differences of different markets, and it quickly buys in low and sells in high for low-risk returns. Read our full guide to arbitrage funds for how the cash and futures legs work. 

Aggressive Hybrid Funds 

Invest 65-80% in equities and the rest in debt, and it is suitable for investors with a high-risk appetite. 

Dynamic Asset Allocation Funds 

Also known as balanced advantage of funds, this is dynamically based on market conditions, and suitable for investors who want to automate asset allocation. 

Equity-oriented Hybrid Funds 

Invest 65% in equity and the remaining 35% is in debt. 

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List of Top Hybrid Mutual Funds 

Here you can see the 10 best hybrid mutual funds in India; 

*Source: etmoney 

Scheme Name Expense Ratio 3Y Return 
ICICI Prudential Equity & Debt Fund 0.97% 21.14% p.a. 
JM Aggressive Hybrid Fund 0.56% 24.74% p.a. 
HDFC Balanced Advantage Fund 0.77% 22.51% p.a. 
Edelweiss Aggressive Hybrid Fund 0.39% 21.36% p.a. 
Bank of India Mid & Small Cap Equity & Debt Fund 0.87% 23.95% p.a. 
Quant Multi Asset Fund 0.6% 23.69% p.a. 
ICICI Prudential Retirement Fund – Hybrid Aggressive Plan 0.81% 22.86% p.a. 
Nippon India Multi Asset Active FoF 0.24% 22.59% p.a. 
UTI Multi Asset Allocation Fund 0.6% 21.72% p.a. 
Kotak Multi Asset Allocator FoF – Dynamic 0.31% 21.57% p.a. 

Note: Always check recent data and past performance before investing. Comparing schemes is easier once you know the difference between direct and regular plans and how to read XIRR in mutual funds.

How Does a Hybrid Mutual Fund Work?

A hybrid mutual fund works by pooling money from various investors and allocates it into equity and debt instruments based on the fund’s objective.  

  • In rising market, equity portion contributes to higher returns
  • During market declines, the debt part helps reduce losses

And some hybrid funds use both arbitrage and derivatives to manage risks and returns. So, the fund manager should balance the equity and debt components to optimize returns based on the market.

Features of Hybrid Funds 

Features Description 
Higher Returns Invest in both equity and debt, so it is striving to better fund returns 
Lower Risk The combining of high-return nature of equity and lower-risk nature of debt will balance risk 
Diversification The exposure to multiple asset classes in a single fund 
Income Generation Income through interest from bonds and dividends from equities, so it is ideal for investors who seeking steady cash flow 
Long Term Performance Suitable for people who have long-term investment goals, minimum lock-in period of 3-5 years.  
Open a free Navia demat account to invest in hybrid mutual funds

Advantages of Investing in Hybrid Mutual Funds 

Balanced Risk and Return 

By investing in both equity and debt, hybrid funds provide stability along with growth potential. 

Suitable for First-time Investors 

Hybrid funds offer a good starting point for new investors who are unsure about market volatility.  

Asset Allocation 

Investors no need to manage equity and debt allocation manually; fund managers will handle it accordingly.  

Reduced Volatility 

The combining of equity and debt hybrid funds will offer lower volatility than equity funds.  

Stable Returns 

Hybrid fund’s goal is to offer stable returns by balancing growth potential equities with income generation debt. If steady income is your main aim, also look at fixed income mutual funds.  

How to Invest in Hybrid Mutual Funds? 

You invest in hybrid mutual funds by defining your goal, opening a demat or mutual fund account, picking the hybrid category that matches your risk appetite and choosing lump sum or SIP. Investing in hybrid mutual funds is very simple, the step-by-step process is given below; 

  1. Step 1: Define your goals like Identifying your financial targets.
  2. Step 2: Open a demat or mutual fund account through platforms like Navia Markets.
  3. Step 3: Select the hybrid fund type that is based on your goal and risk appetite.
  4. Step 4: Choose a mode like Lump sum or SIP (Systematic Investment Plan)
  5. Step 5: After the selection of the mode, you can invest in hybrid funds.
  6. Step 6: Track performance and periodically adjust it.

Hybrid Mutual Funds Taxation Rules

The taxation rules hybrid mutual funds based on their equity exposure. For example, if a hybrid fund holds 65% in equities, it is taxed like an equity fund, 15% on short-term gains (within 1 year), and 10% on long-term gains (above 1 lakh after 1 year). If the equity portion is less than 65%, it is taxed according to the investor’s income tax slab.  

Note: Always consult a tax advisor for updated rules applicable to your financial situation. 

Wrap Up 

What are hybrid mutual funds? The answer is simple; it is a balanced investment instrument that offers both equity and debt markets. We know that different fund types will cater to various risk levels, but hybrid funds are a conservative saver for those seeking growth. If you want to diversify your portfolio or are new to investing, hybrid mutual funds are a strong contender. And also, you can get benefits like risk balance, asset allocation and stable returns.  

So, are you ready for a change? Create an account in Navia and explore the complete benefits now! 

Key Takeaways

  • Hybrid mutual funds hold a mix of equity, debt and sometimes gold in a single scheme.
  • SEBI-classified categories range from conservative (75-90% debt) to aggressive (65-80% equity).
  • The debt portion cushions losses in falling markets while equity drives returns in rising ones.
  • Taxation follows equity exposure: 65% or more in equities is taxed like an equity fund, below that at your income tax slab.
  • They suit first-time and moderate-risk investors who want asset allocation handled by the fund manager.

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Frequently Asked Questions

What is a hybrid mutual fund?

A hybrid mutual fund is a type of investment that puts your money into both equity (stocks) and debt (bonds) to balance risk and returns. 

Are hybrid funds and arbitrage funds same?

No, Hybrid funds invest in both equity and debt for long-term growth and stability, while arbitrage funds earn profits by exploiting price differences between cash and futures markets. 

Who can invest in hybrid mutual funds?

Anyone, beginners, moderate-risk investors, or those looking for a balanced investment. 

What is an example of a hybrid fund?

An example of hybrid mutual fund is ICICI Prudential Equity and Debt Fund. 

What is the return rate of a hybrid fund?

The Return rate of a hybrid mutual fund is based on market performance.

Are hybrid mutual funds good for investment?

Yes, they are suitable for investors who prefer moderate risk and diversified exposure. 

Can anyone invest in hybrid funds?

Yes, hybrid funds are open to all investors.

DISCLAIMER: Investments in the securities market are subject to market risks, read all the related documents carefully before investing. The securities quoted are exemplary and are not recommendatory. Brokerage will not exceed the SEBI prescribed limit. Full disclaimer: https://bit.ly/naviadisclaimer.