What are the Best Hybrid Mutual Funds? – Definition, Types & Benefits of Hybrid Funds

If you’re looking for a way to invest your money that balances risk and return, hybrid funds may be a great option. In this blog, we will explain hybrid mutual funds, their types, the benefits, and the associated risks of investing in them.

What are Hybrid Funds?

Hybrid mutual funds meaning are types of mutual funds in India that invest in stocks and bonds, typically in a ratio that reflects the fund’s investment objective. Unlike pure equity funds that invest only in stocks or debt funds that invest only in bonds, a hybrid mutual fund offers a combination of the two. 

The best hybrid mutual funds are designed to provide investors with the benefits of both shares and bonds. Shares may offer the potential for higher returns, but they can also come with risks. 

Additionally, bonds may provide a fixed-income stream and lower risk. Combining these two asset classes can help manage risk while potentially providing higher returns. Hybrid schemes differ from other types of funds in that they are designed to offer investors a diversified portfolio of both equities and fixed-income securities.

Top 10 Hybrid Mutual Funds

Let’s look at the top 10 hybrid mutual funds below.

Scheme Name	Sub-Sector	AUM (in Cr)	CAGR 3Y	CAGR 5Y
Quant Multi Asset Fund	Multi Asset Allocation Fund	₹1,676.99	31.90	29.70
Quant Absolute Fund	Aggressive Hybrid Fund	₹1,787.77	24.79	25.30
Bank of India Mid & Small Cap Equity & Debt Fund	Aggressive Hybrid Fund	₹656.95	26.20	22.06
ICICI Pru Equity & Debt Fund	Aggressive Hybrid Fund	₹33,502.19	26.60	20.81
ICICI Pru Multi-Asset Fund	Multi Asset Allocation Fund	₹34,703.84	27.00	20.20
JM Aggressive Hybrid Fund	Aggressive Hybrid Fund	₹222.76	24.36	19.33
HDFC Balanced Advantage Fund	Balanced Advantage Fund	₹79,875.08	25.98	18.64
Edelweiss Aggressive Hybrid Fund	Aggressive Hybrid Fund	₹1,353.32	21.73	18.48
Baroda BNP Paribas Aggressive Hybrid Fund	Aggressive Hybrid Fund	₹997.29	18.87	18.27
Kotak Equity Hybrid Fund	Aggressive Hybrid Fund	₹5,045.35	17.28	17.82

Disclaimer: Please note that the above list is for educational purposes only, and is not recommendatory. Please do your own research or consult your financial advisor before investing.

Note: The data on the top hybrid mutual funds in India in the list is from 16th April, 2024.  However, for real-time updates on stock prices and market trends, visit the smallcase stocks collection today!

Best Hybrid Funds in India: Overview

Here is a list of the best hybrid funds in India.

Quant Multi Asset Fund

Quant Multi Asset Fund is a Hybrid Fund scheme launched by Quant Mutual Fund in January 2013. The fund carries an expense ratio of 0.76%, which is above the average for most other Multi Asset Allocation funds. At present, the fund allocates 73.31% to equities and 6.94% to debt.

Quant Absolute Fund

Quant Absolute Fund is an Aggressive Mutual Fund launched by January 2013. The fund’s expense ratio stands at 0.83%, aligning closely with the typical fees of most other aggressive hybrid funds. Currently, the fund allocates 77.22% to equities and 21.42% to debt.

Bank of India Mid & Small Cap Equity & Debt Fund

Bank of India Mid & Small Cap Equity & Debt Fund Direct-Growth is an aggressive hybrid mutual fund offered by Bank of India Mutual Fund. This fund was launched in June 2016. The fund carries an expense ratio of 1.2%, which is above the average for most other Aggressive Hybrid funds. At present, the fund’s portfolio is composed of a 77.00% equity allocation and a 20.42% debt allocation.

ICICI Pru Equity & Debt Fund

ICICI Prudential Equity & Debt Fund Direct-Growth is an aggressive hybrid mutual fund offered by ICICI Prudential Mutual Fund. Launched in January 2013, it is a medium-sized fund. The fund’s expense ratio is 1.02%, which is higher than the average charge for most other Aggressive Hybrid funds. At present, the fund allocates 73.06% of its assets to equity and 22.09% to debt.

ICICI Pru Multi-Asset Fund

ICICI Prudential Passive Multi Asset FoF Direct is launched by ICICI Prudential Mutual Fund. Launched in December 2021,  the expense ratio is 0.22%, which is lower than the fees typically charged by other hybrid funds. At present, the fund’s asset allocation includes 61.01% in equity and 18.35% in debt.

JM Aggressive Hybrid Fund

JM Aggressive Hybrid Fund Direct-Growth is an aggressive hybrid mutual fund offered by JM Financial Mutual Fund. Launched in March 2024, the expense ratio is 0.31%, which is lower than the fees charged by most other Aggressive Hybrid funds. At present, the fund allocates 75.11% to equity and 19.48% to debt.

HDFC Balanced Advantage Fund

HDFC Balanced Advantage Fund Direct Plan-Growth is a Dynamic Asset Allocation mutual fund scheme from HDFC Mutual Fund. The fund’s expense ratio is 0.75%, which is comparable to the fees charged by most other Dynamic Asset Allocation funds. Presently, the fund allocates 55.37% to equity and 27.75% to debt.

Edelweiss Aggressive Hybrid Fund

Edelweiss Aggressive Hybrid Fund Direct – Growth is an aggressive hybrid mutual fund offered by Edelweiss Mutual Fund. Launched in March 2024, the fund has an expense ratio of 0.24%. Currently, the fund has a 77.50% allocation to equity and 22.13% to Debt.

Baroda BNP Paribas Aggressive Hybrid Fund

Baroda BNP Paribas Aggressive Hybrid Fund Direct – Growth is a hybrid mutual fund offered by Baroda BNP Paribas Mutual Fund. Launched in March 2017, it is a  medium-sized fund of its category. The fund’s expense ratio stands at 0.54%. At present, the fund allocates 73.56% of its assets to equity and 23.30% to debt.

Kotak Equity Hybrid Fund

Kotak Equity Hybrid Fund Direct-Growth is an aggressive hybrid mutual fund scheme offered by Kotak Mahindra Mutual Fund. Launched in November 2014, the fund’s expense ratio is 0.47%.  At present, the fund allocates 72.66% of its assets to equity and 25.35% to debt.

How Does a Hybrid Fund Work?

The best mutual funds in India in the Hybrid category seek to achieve a well-balanced investment portfolio that can provide investors with consistent income and long-term capital growth. The fund manager can construct the portfolio based on the fund’s investment goals, allocating resources to equities and debt instruments in different ratios. The fund manager can also adjust the portfolio by purchasing or selling assets in response to favourable market conditions.

Types of Hybrid Funds

There are three main types of hybrid mutual funds: conservative, balanced, and aggressive.

• Conservative Hybrid Funds: Best conservative hybrid funds can allocate a larger percentage of their portfolio to fixed-income securities such as bonds and cash. They can provide stable returns with low risk. A conservative investor may typically not prefer to invest in high-risk or volatile investments.

• Balanced Hybrid Funds: These funds may have a balanced allocation between stocks and bonds, typically ranging from 50-70% in equities and 30-50% in fixed-income securities. They aim to balance risk and returns and can suit investors with a moderate risk appetite.

• Aggressive Hybrid Mutual Funds: Aggressive hybrid fund meaning allocating a larger percentage of their portfolio to equities, typically ranging from 70-80%, and a smaller percentage to fixed-income securities. They potentially aim to provide higher returns but can come with higher risk. It can be suitable for investors with a high-risk appetite. These are called equity hybrid funds.

• Arbitrage Funds: The fund manager can purchase equities at lower prices in one market and potentially sell them at higher prices in a different market. The fund manager may always seek arbitrage possibilities to increase the returns on the fund.

Factors to Consider When Choosing a Hybrid Fund

When choosing the best hybrid funds, investors should consider the following factors:

• Risk Tolerance: Investors should consider their risk tolerance when choosing a hybrid fund. Aggressive investors can opt for the top mutual funds in India under the Hybrid category with a higher allocation to equities. However, conservative investors may prefer funds with a higher allocation to debt.
• Investment Goals: When choosing a hybrid fund, investors should consider their investment goals. If the goal is long-term wealth creation, investors can opt for equity hybrid funds, while debt-oriented funds may be more suitable for investors looking for regular income.
• Time Horizon: The investment time horizon is essential when choosing a hybrid fund. An investor with a longer time horizon can opt for funds with a higher equity allocation, while a shorter time horizon may require a higher debt allocation.
• Evaluation of Performance and Expenses: Investors should evaluate a hybrid fund’s performance over some time before investing in it. They should also consider the costs involved, such as management fees, exit load, and other charges.
• Asset Allocation: Hybrid funds invest in equity and debt securities in varying proportions. Investors should consider the asset allocation of the hybrid fund they are considering investing in. An equity hybrid fund should have a higher allocation towards equity, while a debt hybrid fund should have a higher allocation towards debt.

How to Find the Best Hybrid Fund?

Hybrid funds, also called asset allocation funds, may enable investors to access multiple asset classes within a single fund. They can come with various risk levels, allowing investors to tailor their investment mix. The fund manager can divide your investment between equity and debt instruments based on predetermined ratios.

Your preferences, risk tolerance, and financial objectives can determine the proportion of debt to equity in hybrid funds. These funds may balance risk and return, helping you achieve your financial goals. Thus, combining both can also mitigate the adverse effects of a debt or equity market crisis.

Your investment’s equity portion can offer long-term gains, while the debt portion may generate regular income through interest payments.

Who Can Invest in Hybrid Funds?

Hybrid funds can be a good option for investors looking for a balance between returns and risk. They can be suitable for investors seeking regular income and who have a low to moderate risk tolerance.

Additionally, investors who are new to investing or those who do not have the time or expertise to manage their investments can also consider investing in these funds.  However, it is important to note that investing in hybrid mutual funds may carry a certain degree of risk. Therefore, one should understand and weigh all the risks involved before making any investment decision.

How to Invest in Hybrid Funds?

Investors can invest in the top-performing mutual funds under the hybrid category through their brokerage account or directly through the best mutual fund company.

• Selecting the Right Fund: When selecting a hybrid fund, investors should consider their investment goals, risk tolerance, and time horizon before selecting a fund.
• Understanding Fees and Expenses: It’s advisable to understand the fees and expenses involved in investing in a hybrid fund, such as management fees, exit load, and other charges.
• Monitoring Performance: Investors can track the performance of their investments to identify changes in market conditions or performance fluctuations, which can impact their overall portfolio.
• Choosing the Best Hybrid Fund: Investors can choose the best hybrid mutual fund based on their investment goals and risk tolerance. They can also compare funds based on their performance and expenses.

Hybrid Fund Taxation

In hybrid funds, if kept for a year or more, an investor may only pay long-term capital gains (LTCG) tax of 10%. If it’s a short-term capital gains (STCG), then it maybe a tax of 15% if held for less time. However, if an investor opts for a hybrid fund’s IDCW or dividend payout scheme, then one has to pay taxes on dividends.

Benefits of Investing in Hybrid Funds

These offer several benefits to investors, including diversification, lower risk, and the potential for higher returns.

• Diversification: They offer diversification by investing in a mix of stocks and bonds, which helps reduce the risk of loss.
• Potential for Higher Returns: The combination of stocks and bonds in this fund can give higher returns than fixed-income securities alone.
• Convenience: Hybrid mutual funds offer a one-stop solution for investors looking to invest in stocks and bonds.

Risks Associated with Hybrid Funds

Like any investment, a hybrid fund may also come with risks. Some of the risks associated include:

• Market Volatility: The value of the stocks and bonds in the fund can fluctuate based on market conditions.
• Interest Rate Changes: Changes in interest rates can impact the value of fixed-income securities in the fund.
• Credit Risk: Hybrid funds that invest in bonds carry the risk of default by the issuer.

To Wrap It Up…

In conclusion, hybrid mutual funds offer investors a balanced investment option combining the benefits of stocks and bonds. By investing in a hybrid fund, investors can potentially achieve higher returns with less risk. To choose the best hybrid mutual fund, investors should consider their investment goals, risk tolerance, and time horizon. 

For those who want to diversify their portfolios & yield significant returns, don’t forget to discover 500+ readymade portfolios on smallcase. So start building you long term portfolio with smallcases today!

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