What is Hybrid & Balanced Mutual Fund?

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Hybrid funds come in a variety, based on their asset allocation. Investors should pick a hybrid fund that fits their financial goals, time horizon, and risk tolerance.

Following the scheme’s investment objective, hybrid funds are mutual fund schemes that invest in more than one asset class, such as equities, debt funds, and other asset classes. To reduce risk, these funds invest in a variety of different asset types to diversify the portfolio. While being less risky than equity funds, hybrid funds can produce returns that are comparable to those of debt funds.

Types of Hybrid Funds

Hybrid funds come in a variety, based on their asset allocation. Investors should pick a hybrid fund that fits their financial goals, time horizon, and risk tolerance.

Aggressive Hybrid Fund

Open-ended aggressive hybrid funds invest between 65% and 80% of their assets in equity and equity-related products, with the remaining assets being split between debt and money market instruments. These funds are riskier than conservative hybrid funds but have the potential to produce significantly better returns because of their greater exposure to equities and equity-related products.

Conservative Hybrid Fund

Conservative hybrid funds are open-ended hybrid schemes that place between 75% and 90% of their assets in fixed income-producing securities like commercial papers (CPs), certificates of deposit (CDs), T-bills, corporate bonds, and other money market instruments. The remaining money is put into equity-related investments. These funds are excellent for risk-averse investors since they are less volatile than an aggressive hybrid fund.

Dynamic Asset Allocation Fund

According to the current market conditions and a proprietary investment strategy, a dynamic asset allocation fund, as its name implies, invests in both equities and debt. Regardless of market conditions, investors seeking greater long-term risk-adjusted returns may choose this product.

Multi-Asset Allocation Fund

Multi-Asset Allocation Fund allocates a minimum of 10% of its portfolio to at least three asset classes, and it can change that percentage according to the state of the market. Typically, these funds invest in stock, debt, and gold-related assets, including ETFs and other asset classes that SEBI may occasionally specify.

Arbitrage Fund

Arbitrage funds operate by profiting on the price differential between two markets — typically the cash market and the futures market. These funds buy stocks on the open market and sell them at the same time on the futures exchange. The minimum gross exposure to equities for arbitrage funds is 65%, with the remaining percentage allocated tactically to debt and money market instruments.

Balanced Hybrid Funds

These programs allocate between 40 and 60 percent of their funds to debt and equity asset classes. Through investments in the equities asset class and risk management through debt allocation, the goal is to achieve long-term wealth generation. The use of arbitrage is prohibited in this class of schemes.

Equity Savings Fund

By investing in equities, derivatives, and debt, these funds seek to strike a balance between risk and return. By lowering the exposure to directional equities, derivatives lower volatility and produce a consistent return. Growth and debt are provided by equities assets, while regular, steady returns are provided by derivatives. These schemes make investments that range from 0 to 35% in debt asset classes and 65 to 100% in equity assets.

Advantages of Hybrid Fund

Access numerous asset classes with a single fund:

One of the obvious benefits of hybrid mutual funds is that an investor may access many asset classes in a single product rather than investing in separate products to meet the need for various asset classes.

Active Risk Management:

Through asset allocation and portfolio diversification hybrid mutual funds offer active risk management. By merging uncorrelated asset classes like debt and equity, they reduce risk.


In addition to diversifying the portfolio across asset classes, they also do so within each class of assets. They invest in large-, mid-, or small-cap equities, as well as in value- or growth-oriented firms, just like the overall equity allocation.

Caters to various risk profiles:

These funds can offer a range of risk tolerance levels, from conservative to moderate to aggressive. They cater to different risk profiles. For those who want to take on more risk, there are equity-oriented plans; for those who are risk-averse, there are debt-oriented plans; and for those who want to move based on market views without making the choices themselves, there is the Dynamic Asset Allocation Fund. For investors seeking steady profits in a volatile environment, use arbitrage.

Buying low and selling high:

The fund managers rebalance the portfolio to modify the asset allocation within the permitted limit, which results in selling a particular asset class when it is high and buying it when it is low.

Automatic Rebalancing:

When necessary, the fund management rebalances the portfolio; the investor is not needed to do this on his end. They reduce the time and effort needed to manage asset allocation and track the markets.

Who should invest in Balanced Funds?

A balanced fund is best suited for investors who seek a balance of income, low-to-medium risk, and modest capital accumulation once we understand what it is. These funds can modify their asset allocation in a limited range in response to market conditions while maintaining the declared direction of the fund. They are exposed to both equities and debt asset classes. While the fund’s equity portion can produce capital growth during bull phases, the debt portion protects money.

Steps to Invest in Balanced Mutual Funds

Here are a few simple procedures for buying balanced mutual funds:

- Open a profile online with an AMC, a brokerage, or your mutual fund distributor.

- Finish your e-KYC (furnishes your proof of identity, proof of address, and PAN details)

- Choose a plan that is in line with your financial objectives.

- Set a recurring investment amount (like a Systematic Investment Plan or SIP)

- Set up an automatic bank transfer for your SIPs, or give your broker or distributor a check to cover the cost of the units.

For investors with a moderate appetite for risk and long-term objectives, balanced funds are a solid choice. Both novice and experienced investors may find them useful as stand-alone investments or in combination with other investment strategies.