What are Hybrid Mutual Funds What are Hybrid Mutual Funds

What are Hybrid Mutual Funds?

In recent years, hybrid mutual funds have grown as an adaptive and popular option for investors looking for a subtle balance between return and risk.

Hybrid mutual funds invest in a mix of asset classes such as equity and debt instruments. As a result, investors get the best of both worlds.

To help you understand it better, this article will cover what are hybrid mutual funds in detail. So, let’s start.

What Are Hybrid Mutual Funds?

Hybrid mutual funds, also called Balanced funds, invest in both debt and equity assets and create a balance in the investing portfolio.

The mutual fund category aims to reduce the risk of investing in equity and add stability of fixed-income instruments.

Put simply, these funds offer an adaptive method of building wealth that effectively satisfies the needs of investors who have medium risk tolerance levels.

Types of Hybrid Funds

Here are different types of hybrid mutual funds –

1. Conservative Hybrid Funds

Investors who prefer less risk are the target audience for conservative hybrid funds. These funds usually allocate a sizable amount of their overall holdings to debt securities and hence provide stability to the portfolio.

2. Aggressive Hybrid Funds

These funds are designed for investors who are comfortable with an increased level of risk with return. Aggressive Hybrid Funds have a limited percentage of debt and are biased toward equities with the goal of capital growth.  

3. Balanced Hybrid Funds

These funds combine debt and equity investments in their portfolios to attain an equilibrium approach. The main objective of Balanced Funds is to create a balance between risk and return and therefore serve the needs of the majority of investors. 

4. Arbitrage Hybrid Funds

Arbitrage funds are hybrid funds created to capitalize on the price variations that exist between different markets. These markets can be either cash markets or derivative markets.

These funds aim to generate profits at a lower risk by exploiting market imperfections.

Fees Involved in Hybrid Mutual Funds

Before investing in any of the investment options, it is necessary to know and understand the fees involved in it. Hybrid mutual funds, like any other mutual fund, can come with a number of specific fees. 

The following are some common fees associated with hybrid funds –

1. Expense Ratio

The expense ratio includes the annual costs of administering and managing the mutual fund. It involves additional operating costs, management fees, and other costs.

2. Transaction Fees

When purchasing or selling mutual fund units, certain hybrid funds might charge transaction fees. These fees are normally charged to cover the costs of transaction processing; they are not counted in the expense ratio.

Also, there are front-end load and exit load fees charged in some mutual funds. This makes it inevitable for investors to be well-informed about the fees applicable in the hybrid mutual funds.

How Good Are Hybrid Fund Returns?

Now that you know the hybrid mutual funds meaning, let’s see whether they are good for returns. Well, over an extended period of time, hybrid funds have proven to be reliable sources of returns.

They may not reach the peaks of pure equity funds in periods of the bull market, but they have capacity to perform in a balanced manner during bear markets.

This makes hybrid funds appealing as they provide investors with both the stability of debt instruments and the prospective gain of equities, all of which contribute to a diversified portfolio.

Advantages of Investing in Hybrid Funds

Here are the main advantages of investing in hybrid funds –

1. Diversification

By providing investors with a balanced portfolio, hybrid funds help minimize the negative effects of weak performance in a particular asset class.

2. Risk management

During market swings, the combination of debt and equity helps to manage the risk effectively for investors.

3. Flexibility

Hybrid funds provide a range of alternatives such as aggressive hybrid funds, conservative hybrid funds, and many more, catering to investors with varying risk tolerances and preferences.

Disadvantages of Investing in Hybrid Funds

Every investment has its pros and cons. Here are some of the drawbacks of hybrid funds –

1. Market Risks

Due to the extreme volatility of the equities market, hybrid funds are subject to market risks. When the underlying stock prices decrease, the value of the fund also decreases.

2. Interest Rate Risk

Prices for bonds and interest rates are inversely correlated. Bond prices decrease as interest rates rise. As a result, the value of the fund may decrease. 

3. Wrong fund selection

When choosing hybrid funds, investors often make their decisions on historical performance, which can lead to wrong fund selection. Many other factors such as macroeconomic factors should be considered for better decision making. 

Top 10 Hybrid Mutual Funds

Here is the list of the top hybrid mutual funds in India.

  1. Quant Multi Asset Fund Direct – Growth
  2. Bank of India Mid & Small Cap Equity & Debt Fund Direct – Growth
  3. ICICI Prudential Equity & Debt Fund Direct – Growth
  4. HDFC Balanced Advantage Fund Direct Plan – Growth
  5. Quant Absolute Fund Direct – Growth
  6. JM Aggressive Hybrid Fund Direct – Growth
  7. Edelweiss Aggressive Hybrid Fund Direct – Growth
  8. Mahindra Manulife Aggressive Hybrid Fund Direct – Growth
  9. HDFC Children’s Gift Fund Direct Plan
  10. UTI Aggressive Hybrid Fund Direct Fund-Growth


Hybrid mutual funds invest in a mix of equity and debt instruments. They help in diversifying your investment portfolio and maintain a good balance between risk and return.

You should conduct your own research and invest as per your goals and risk appetite.

Happy Investing 💰

Note: This blog is not to be construed as investment advice. Please do your own due diligence when investing in mutual funds. The mutual funds mentioned above are examples, not recommendations.