What are Hybrid Mutual Funds? Its Types and Benefits

Mutual funds are the most preferred market-linked investment instruments today. Mutual funds come in many types and give you the benefit to invest as per your needs, investment goals, and risk profile. Now, let’s know in detail about hybrid mutual funds.

What is a hybrid mutual fund?

Hybrid mutual funds are mutual fund schemes that invest in a mix of various asset classes such as equity, debt, real estate, etc depending on the fund’s objective and investing style. Hybrid mutual funds diversify the corpus by investing in multiple asset classes and hence minimise the risk. Hybrid funds generally come with low to moderate risk depending on the type of hybrid mutual fund you choose to invest in. 

Types of hybrid mutual funds

The following are the types of hybrid mutual funds.

  • Aggressive hybrid funds:

Aggressive hybris funds are equity-oriented hybrid funds that invest up to 75% of the corpus into equity. The remaining corpus is invested in debt and other asset classes. Aggressive hybrid funds are suitable for investors having medium-term financial goals with an ability to take moderate to high risk. 

  • Balanced hybrid funds:

As the name suggests, balanced hybrid funds invest in equity and debt securities in equal proportion. That means balanced hybrid funds invest up to 50% into equity and up to 50% into debt securities. Balanced hybrid funds are suitable for medium-term investors seeking the dual benefit of income stability and capital appreciation.  

  • Equity savings funds:

Equity savings funds invest up to 30% into equity along with generating risk-less returns by taking advantage of the pricing difference of securities in the market. Investors with low to moderate risk appetite seeking to invest for goals that are two to three years away can consider these funds.

  • Conservative hybrid funds:

Conservative hybrid funds are low-risk hybrid funds that invest up to 75% into debt securities and a maximum of 25% into stocks. These funds are suitable for conservative investors looking for income-generating fund options with a two to three years investment horizon.

  • Dynamic asset allocation funds:

Dynamic asset allocation funds work on model-based triggers as per the market conditions to ensure stable returns. These funds are suitable for medium-term investors looking for both stability and growth. 

  • Multi-asset allocation funds:

Multi-asset allocation fund allocates a minimum of 10% into each different asset class such as equity, debt, real estate or gold, etc. Diversification offered in the fund reduces the risk. Hence, it is suitable for medium-term investors seeking diversification with a reasonable return. 

  • Arbitrage funds:

Arbitrage funds work on the basis of an arbitrage strategy that generates returns based on the price differences of the securities in the different markets. 

Benefits of hybrid mutual funds:

Hybrid mutual funds offer you various benefits to reach your investment goals. Let’s take a look at the benefits of hybrid mutual funds:

  • Diversification

One of the main advantages of hybrid funds is that you can invest in various asset classes like equity, debt, gold, real estate, etc., in a single investment and diversify your investment. Also, hybrid funds are multi-cap funds and hence diversify your investment across market capitalisations and sectors. Diversification reduces the risk and maximises the return potential over the long run.

  • Low cost

With diversification in a single investment, these funds also reduce your investment cost. The expense ratio of hybrid funds is quite low. For example, the SBI equity hybrid fund offered by the SBI mutual fund comes with an expense ratio of 0.83%, which is considerably low.

  • Automatic rebalancing

Asset allocation-based hybrid funds offer the benefit of automatic rebalancing of the investment portfolio to ensure stability and growth.

  • Suitable for various investor types

As there are many types of hybrid mutual funds available with different percentage allocations to various asset classes, you can find hybrid funds suitable for conservative to aggressive investors. 

  • Reasonable returns

Hybrid funds offer a reasonable return for medium to long-term investors by diversifying the investment. Let’s take a look at the consistent performers and the funds with higher fund sizes in each category of hybrid funds.

Scheme Name Return Expense ratio Fund size
1 year 3 years 5 years Since inception
SBI Equity Hybrid Fund-Direct-Growth 6.02% 16.26% 14.25% 15.12% 0.83% INR 53,018 Cr
ICICI Prudential Asset Allocator Fund (FOF)-Direct-Growth 8.66% 15.46% 13.78% 12.01% 0.07% INR 16,869 Cr
Kotak Equity Arbitrage Fund-Direct-Growth 4.39% 4.53% 5.06% 6.87% 0.44% INR 24,543 Cr
HDFC Balanced Advantage Fund-Direct-Growth 19.45% 23.99% 17.15% 13.73% 0.97% INR 46,130 Cr
ICICI Prudential Multi-Asset Fund-Direct-Growth 13.94% 24.88% 18.47% 15.80% 1.19% INR 13,728 Cr

In this, the SBI equity hybrid fund offered by SBI mutual fund with the highest fund size has been delivering consistent returns over the years.

It is important to choose the right fund suitable for your risk profile and investment goals to achieve your dreams. 

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