How Can Hybrid Mutual Schemes Reward Investors?

There are several investment options available when choosing to invest your money in mutual funds. The different categories of mutual fund schemes allocate the fund to other asset classes. However, the two most significant portfolios act as the cornerstone of investment. It includes Debt and Equity.

Fundamentally, these two schemes are opposite in nature. On one hand, equity is more volatile over a short-term period and can generate greater returns in the long run. On the contrary, debts are more stable. Their returns are, to some extent, decent. Both these asset classes play a significant role in one’s portfolio based on the investor’s investment horizon and risk appetite.

Out of these numerous types of mutual funds, hybrid funds are one type that invests in both equities and debt. In this article, let’s explore the remarkable benefits of Hybrid Mutual Funds.

What is a Hybrid Fund?

So, what is hybrid fund? A hybrid fund is a unique kind of mutual fund. It enables you to participate in two or more well-known products of the capital and commodity markets. While commodities and stocks accelerate capital growth, debt guarantees stability and superior risk management. A hybrid fund’s primary goal is to give you capital growth without the risks associated with pure equity funds.

There is minimal connection between equity and debt. So, hybrid funds perform better when pure equity funds experience a decline in value. On the other hand, when the equity market exhibits a gradual rebound, hybrid funds could produce fantastic returns.

Debt securities often move in the opposite way from equity equities. This is due to the fact that when the equity market expands, investors divert money from debt. They invest it in equity equities, which increases the value of equity stocks. In contrast, if the stock market falls, investors switch to debt to safeguard their wealth and receive respectable returns.

Consequently, hybrid funds can help you maximise the benefits of both equity and debt. Thereby, it aids in lowering the dangers involved with capital market investing.

What are the Types of Hybrid Funds?

The most significant types of hybrid mutual schemes include:

  • Equity-oriented hybrid funds- Between 65% and 80% of their total assets are allocated to stocks and securities that relate to equity in equity-oriented hybrid funds. The remaining portion is allocated to money market and debt-based products. A different name for them is aggressive hybrid funds.
  • Debt-oriented hybrid funds- On the other hand, debt-oriented hybrid funds make between 75 and 90 per cent of their investments in debt-based instruments and between 10 and 25 per cent in equity and equity-based assets. Conservative hybrid funds are another name for debt-focused hybrid funds.
  • Balanced funds– In balanced funds, equity and debt get divided between 40 and 60 per cent.
  • Balanced advantage fund– A dynamically managed asset allocation fund with assets in debt and equity equivalents refers to a balanced advantage fund.
  • Arbitrage funds– In order to take advantage of the price differential, arbitrage funds simultaneously acquire and sell assets.

Why Investors May Consider Investing in Hybrid Mutual Funds Now?

It is wise to use a multi-asset approach to investing in the present climate of macroeconomic uncertainty, higher volatility, rising inflation, and geopolitical worries.

Hybrid Mutual Funds have gotten investor interest as predicted because debt and equity have recently performed well. Additionally, the hybrid mutual fund investing plan adheres to the widely accepted investment theory that suggests diversifying your portfolio to reduce risk and capitalise on market volatility.

In addition to offering the stability of the debt markets, which might support the portfolio when equity markets correct in the interim, hybrid funds let investors take advantage of investment opportunities in the stock markets. In situations where one asset class seems dangerous, the value of having the correct asset mix might be justified.

Advantages of Hybrid Funds

Investing in hybrid mutual funds has a number of benefits, which are as follows:


Hybrid funds provide investments with a range of risks, from high to medium to low. This allows you and other investors to select a plan in accordance with your risk tolerance to achieve your investment objective.

Exposure to Multi-asset Classes

When investing in this kind of mutual fund scheme, you can have exposure to more than one asset class because hybrid funds invest in both debt and equity assets.

Prudent Risk Management

In order to balance portfolio risks, hybrid fund managers actively manage the funds by investing in a variety of non-correlated assets. Long-term, this dramatically lowers portfolio risk and aids in maximising profits.

Investment in Asset Subclasses

Additionally, hybrid fund managers are free to make investments in several asset subclasses within a category. For instance, to achieve the goals of the plan, customers might select large-, mid-, or small-cap stocks while investing in the equity class.


To sum up, considering these several hybrid fund types in light of your risk tolerance is a wise move. This is because these funds include equity exposure, which introduces a variable element. Fund managers make decisions on changes in interest rates and the credit environment as part of the debt component. Fund managers also switch between different assets and market capitalisations.

Having said that, hybrid funds are a need in your mutual fund portfolio, especially if you are new to investing or usually have a conservative or moderate risk mindset. They are fantastic at striking the right balance.