Enhancing portfolio resilience: The value of hybrid mutual funds

Investments are categorised into three types depending on risk – low-risk debt investments, high-risk equity investments and a mid-risk investment called hybrid investments. When it is about investing, financial advisors often recommend preparing a plan that matches well with your life goals, risk appetite level and investment time frame. However, not everyone fits neatly into the high or low-risk categories. Here’s where hybrid funds come in. Read on to know why they are considered a prudent addition to your investment portfolio.

What is a hybrid mutual fund?

Hybrid funds combine both equity and debt. They are formed to help you attain your investment goals in a way that matches your needs. Each hybrid mutual fund is a blend of equity and debt carefully selected to match distinct types of retail investors.

How do hybrid funds work?

The aim of hybrid mutual funds is to provide you with a balanced mix of investment portfolios. This means the fund ensures you receive regular income through debt and through equity exposure get the potential to enhance your investment over time. The manager of the mutual fund determines how much funds must go into debt and equity depending on the fund’s goal. They may even sell, or purchase investments based on how the market is performing.

Who should consider hybrid mutual funds?

Hybrid funds are a bit riskier than just putting money in debt and safer than just investing in equities. They often offer better returns compared to debts, which makes them appealing to many investors who do not want too much risk. People who are new to investing and are unsure about diving into the equity market might also like hybrid funds. The debt part of these funds provides stability while they explore the vertical of equities too. In simple words, hybrid funds can help you make the most of investing in equities while also providing a safety net against big ups and downs in the market through debt exposure.

The benefits of hybrid funds 

Here are some advantages of investing in hybrid funds –


Hybrid funds not only spread your investment across different types of assets like equities and debts but also within those categories. This added layer of diversification can enhance the stability of your portfolio.

Managing risk

Hybrid funds strategically distribute your money across various asset types, aiming to lower the overall risk in your investment. By not putting all your eggs in one basket, you can better shield your investments from significant losses.

Access to different types of investments

Hybrid funds provide you with the opportunity to invest in a variety of assets all in one place, saving you from the hassle of managing multiple investments for diversification.

Options for different investors

Hybrid funds cater to a wide range of investor preferences. If you are more cautious with your money, there are options with a focus on stability. If you are comfortable with more risk, there are choices that offer the potential for higher returns.

What to think about before investing in hybrid funds?

Here are important things to consider –

Risk and return

The amount of risk and the possible returns depend on how much of the fund is in debt and equities. Understand this before you invest.

Choose the right fund

Different hybrid funds fit different people. Look at your goals and how much risk you are comfortable with before you pick a fund.

Tax rules

The tax you pay on the money you make from a hybrid fund depends on if it is from equity or debt concentrated.  Equity components offering long-term gains above a threshold incur a 10 per cent tax; short-term gains face a 15 per cent tax. In debt concentrated hybrid fund, taxation is as per the debt component where your capital gains are added to your income and taxed as per your income tax slab.

Ending note

Hybrid mutual funds can be a smart way to build a balanced investment plan that fits your goals and risk tolerance level. They offer a way to blend different types of investments to help your money grow while managing risk showing you a path towards lasting financial security.

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