The Indian stock market has seen many ups and downs recently. With global events like trade tensions, inflation, and interest rate changes affecting market movement, many investors are becoming cautious about investing directly in equity mutual funds. If you also feel worried about market risk but still want decent returns, hybrid mutual funds can be a smart choice.
These funds offer a good mix of equity (shares), debt (bonds), and sometimes other assets like gold. By investing in a hybrid fund, you are not putting all your money in one place. This balance helps reduce risk while aiming for better long-term returns.
Let’s understand hybrid mutual funds, their types, return history, and how to choose the right one based on your needs.
What Are Hybrid Mutual Funds?
Hybrid mutual funds are a type of investment scheme that combines multiple asset classes like equity, debt, and sometimes gold in a single portfolio. The idea is to balance growth and safety. While equity can give higher returns, it also carries higher risk. Debt, on the other hand, offers more stability. The mix ensures that if one asset class does not perform well, the other can support your investment.
Why Should You Consider Hybrid Funds?
- Less Risky Than Pure Equity: Hybrid funds reduce risk by diversifying your money across assets.
- Better Than Fixed Deposits: Many hybrid funds offer better returns than FDs while maintaining moderate risk.
- Ideal for New Investors: If you’re entering mutual fund investments for the first time, hybrid funds provide a good starting point.
- Tax Efficiency: Some hybrid funds are treated like equity for tax purposes, offering better post-tax returns.
Types of Hybrid Mutual Funds in India
Let’s explore different categories of hybrid funds and who they are best suited for:
1. Conservative Hybrid Funds
- Investment Mix: 75%–90% in debt, 10%–25% in equity.
- Ideal For: Risk-averse investors looking for stable returns.
- Investment Horizon: 3+ years.
- 1-Year Returns: Around 10.75% to 11.45%.
- Risk Level: Moderately High.
These funds are a good alternative to FDs with better return potential. Since they invest more in bonds, the downside risk is lower.
2. Balanced Hybrid Funds
- Investment Mix: 50% equity, 50% debt.
- Ideal For: Investors wanting a balanced risk-return profile.
- Investment Horizon: 3 to 5 years.
- 1-Year Returns: 10.56% to 11.59%.
- Risk Level: Moderately High to Very High.
With only two schemes currently available in this category, this segment is niche but useful for medium-term goals.
3. Aggressive Hybrid Funds
- Investment Mix: 65%–80% equity, rest in debt.
- Ideal For: Beginners wanting higher returns but with some safety net.
- Investment Horizon: 5+ years.
- 1-Year Returns: 11.85% to 17.29%.
- 3-Year Returns: 16.08% to 20.75%.
- 5-Year Returns: 24.56% to 29.34%.
- Risk Level: Very High.
These funds are suitable for investors willing to take more risk for higher returns.
4. Dynamic Asset Allocation Funds (Balanced Advantage Funds)
- Investment Mix: 0%–100% in equity or debt based on market condition.
- Ideal For: Investors looking for market-linked flexibility.
- Investment Horizon: 5+ years.
- 1-Year Returns: 10.51% to 13.12%.
- 3-Year Returns: 12.84% to 19.19%.
- 5-Year Returns: 17.34% to 26.49%.
- Risk Level: Very High.
Their flexible strategy can help reduce downside in bad markets and capture upside when markets rise.
5. Multi Asset Allocation Funds
- Investment Mix: Minimum 10% in equity, debt, and gold each.
- Ideal For: Diversification lovers who want all asset classes in one fund.
- Investment Horizon: 5+ years.
- 1-Year Returns: 11.74% to 16.38%.
- 3-Year Returns: 14.31% to 18.11%.
- 5-Year Returns: 18.99% to 31.87%.
- Risk Level: High to Very High.
This category offers strong diversification which helps protect against sudden shocks in one asset class.
6. Equity Savings Funds
- Investment Mix: Combination of equity, debt, and arbitrage.
- Ideal For: Investors looking for steady income with tax benefits.
- Investment Horizon: 3+ years.
- 1-Year Returns: 9.54% to 11.59%.
- 3-Year Returns: 11.01% to 11.96%.
- 5-Year Returns: 14.56% to 16.62%.
- Risk Level: Moderate to Moderately High.
They are good for conservative investors who still want some equity exposure.
7. Arbitrage Funds
- Investment Mix: Mostly equity arbitrage (buy and sell the same stock in different markets).
- Ideal For: Short-term investors seeking tax-efficient returns.
- Investment Horizon: 3 months to 1 year.
- 1-Year Returns: 7.96% to 8.03%.
- 3-Year Returns: 7.41% to 7.66%.
- 5-Year Returns: 6.20% to 6.34%.
- Risk Level: Low.
These funds are ideal for parking surplus funds temporarily with better returns than a savings account.
How to Select the Right Hybrid Fund for Your Goal
Choosing the right hybrid fund depends on your financial goals, risk appetite, and investment duration. Here are a few tips:
- Match Your Risk Profile: Choose conservative, balanced, or aggressive based on how much risk you can take.
- Look at Past Performance: See how the fund performed over 1, 3, and 5 years.
- Fund Ratings: Use fund rating websites to check credibility.
- Fund Manager Experience: A skilled manager can make a big difference.
- Expense Ratio: Lower costs mean higher returns in your hand.
- Investment Horizon: Always align the fund’s nature with how long you can stay invested.
Final Thought
Hybrid mutual funds are becoming popular in India for good reason. They provide a safety cushion while still offering growth potential. Especially in uncertain times, they are a reliable tool to build wealth steadily without exposing yourself to the high risks of pure equity.
