What are Hybrid Funds? What are the different types of Hybrid Mutual Funds?

Hybrid Mutual Funds invest in a mix of Equity, Debt, and gold-related instruments. The combination of asset classes will depend upon the investment objective of the fund.

The risk and return in the scheme will depend upon the allocations to each asset class, and the type of securities in each asset class that are included in the portfolio.

What are Hybrid Mutual Funds?

Mutual Fund investments can be broadly classified into three categories – Equity, Debt and Hybrid. A Hybrid Mutual Fund has a different combination of Equity and Debt financial instruments and are aimed at investors that prefer high-risk as well as low-risk assets. Hybrid Mutual Funds seek to find a ‘balance’ between growth and income by investing in both Equity and Debt with the aim of diversifying the portfolio.

Hybrid Mutual Funds are suitable for conservative to moderate and aggressive investors. Someone who is investing in Mutual Funds for the first time can also opt for this type of fund as it has varying level of risks, asset allocation, diversification and capital appreciation through Equity allocation.

As per the Securities and Exchange Board of India (SEBI), there are 7 different sub-categories/types of Hybrid Mutual Funds.

Conservative Hybrid Fund:

The Conservative Hybrid Fund requires you to allocate at least 10% to 25% of the total assets to Equity and Equity-related financial instruments and the remaining 75% to 90% can be allocated to Debt instruments.

The Debt asset class includes fixed income-generating securities such as treasury bills, corporate bonds, commercial papers, certificate of deposits and others.

Balanced Hybrid Fund:

This Mutual Fund scheme invests a minimum of 40% and a maximum of 60% in both Equity and Debt asset classes. Investors that are looking for long-term capital generation can opt for a balanced Hybrid Fund, as the Debt financial instruments help to offset the risks posed by the Equity asset class.

Aggressive Hybrid Fund:

Under this scheme, investors can invest a minimum of 65% and a maximum of 80% in the Equity asset class. The Debt asset allocation can be in the range of 20% to 35%. Here, there is a possibility to earn higher returns at a reduced risk, due to the allocation of Debt Securities in the portfolio.

Dynamic Asset Allocation/Balanced Advantage Fund

This type of Hybrid Fund is suitable for investors that want to automate asset allocation. These funds are dynamic in nature, which means you have the flexibility to shift 100% to Debt financial instruments or 100% to the Equity asset class. The asset allocation is decided based on the recommendation of the financial model deployed by the fund.

Multi-Asset Allocation Fund

This type of fund requires you to invest a minimum of 10% of its portfolio in at least three different asset classes, including Equity, Gold and Debt instruments.

Arbitrage Hybrid Fund:

This Mutual Fund scheme follows an arbitrage strategy with a minimum of 65% investment in Equity and Equity-related instruments.

Equity Savings Fund:

This is an open-ended scheme that invests in Equity, Arbitrage and Debt Securities. The minimum investment in Equity and Equity-related instruments should be % of the total assets and the minimum investment in Debt should be % of the total assets. The minimum hedged and unhedged investment needs to be stated in the Scheme Information Document (SID).