What Are Hybrid Mutual Funds? Types, Returns, and Risks

Hybrid mutual funds have emerged as a popular investment option in India. This fund offers a blend of growth and stability by investing across multiple asset classes. Here, we will explore more about hybrid mutual funds

Hybrid mutual funds are organized to diversify investments across various asset classes such as equity, debt, gold, and sometimes real estate. SEBI, or the Securities and Exchange Board of India, has categorized hybrid funds into four main categories.

Types of Hybrid Mutual Funds in India

These mutual funds are a combination of equity and debt in differing proportions to balance risk and reward. Sub-types include:

Types	Definition
Aggressive Hybrid Funds	In these hybrid funds, the investor mainly invests in equities (65–80%) with a smaller portion in debt (20–35%), like Quant Absolute Fund, ICICI Pru Equity & Debt Fund.
Balanced Advantage Funds/Dynamic Asset Allocation Funds	Here, the investor can dynamically adjust their asset share between equity and debt, which is 0-100% based on market conditions. It also offers flexibility and automated asset allocation.
Conservative Hybrid Funds/ Arbitrage Funds	In these hybrid funds, the investor mainly invests in debt with a smaller portion in equities.
Multi-Asset Allocation Funds	In this, the investor invests in at least three different asset classes, such as equity, debt, and gold, like Quant Multi-Asset Funds.

Returns of Hybrid Mutual Funds

The returns from a hybrid mutual fund depend on its asset allocation and market conditions.

Aggressive Hybrid Funds: This fund has historically delivered competitive returns, often in the range of 15–25% or more over a 3 to 5-year period, with some top performers exceeding 28% annualized returns in the past five years.
Balanced Hybrid Funds: This fund generally offers moderate returns, often between 8% and 15% over similar periods.
Conservative Hybrid Funds and Arbitrage Funds: These manage to generate lower, more stable returns, usually in the range of 5–10%, making them suitable for investors prioritizing capital preservation and consistent income.
Dynamic Asset Allocation Funds and Multi-Asset Allocation Funds: These can also show strong performance, depending on their active management and the performance of the various asset classes they invest in. Some top-performing multi-asset funds have delivered over 30% annualized returns in the past five years.

Watch this video on Hybrid Mutual Funds for complete insights.

Risk of Hybrid Mutual Funds

Here are some risks of hybrid mutual funds:

Market Risk: Funds with higher equity exposure, like aggressive hybrids, are more sensitive to stock market volatility.
Credit Risk: Debt instruments in the portfolio may carry default risk if issuers fail to meet commitments.
Dynamic Allocation Risk: In dynamic or balanced advantage funds, incorrect market timing or allocation shifts by the fund manager can impact the investor's performance.
Interest Rate Risk: Debt components are exposed to changes in interest rates, affecting returns in conservative hybrids.
Liquidity Risk: During extreme market conditions, some assets in the portfolio may become difficult to sell without affecting prices.

Also check - What Are Equity Mutual Funds? Meaning, Types, and Benefits

Conclusion

In conclusion, hybrid mutual funds offer an effective investment option by combining the growth potential of equities with the stability of debt instruments. Whether you are a traditional investor looking for predictable income or a moderate-risk investor seeking the fund's preference with reduced volatility. We hope this blog has been helpful to you.

About the Author

Saniya

I'm a finance content writer with a BBA in FinTech, passionate about simplifying money matters for everyday Indians. I break down complex topics like investments, savings, and digital finance into easy, relatable content. My goal is to help you in a way that’s easy to understand, jargon-free, and actually useful in real life.

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