Hybrid Funds

What are Hybrid Funds?

Hybrid funds are mutual funds that invest in equity (stocks) and debt (bonds) to balance growth and stability. The equity component focuses on capital appreciation, while the debt portion provides stability and regular income. Fund managers maintain the mix within the allocation limits prescribed by the Securities and Exchange Board of India (SEBI), periodically rebalancing the portfolio to align with the scheme’s objectives. This structure helps investors manage risk effectively and achieve steady growth over the medium term, making hybrid funds suitable for those who want consistent performance without taking excessive market exposure.

Top 10 Hybrid Funds in India 2025

Below is a list of some of the top-performing hybrid funds in 2025, based on their 3-year returns, asset size, and CRISIL ratings:

Note: CRISIL rankings of Hybrid funds as on 30 September 2025. Returns and AUM may change over time; investors should verify the latest AMC or AMFI website data before investing.

Key Features of Hybrid Funds

Hybrid funds have several key features that make them suitable for investors seeking stability and growth. These include:

• Diversification: Hybrid funds allow investors to participate in equity and debt markets, offering a well-spread portfolio that includes stocks, bonds, and sometimes other assets like gold. This mix helps reduce risk while providing exposure to multiple asset classes through a single fund.
• Long-Term Performance: These funds are designed for investors who wish to achieve long-term goals such as buying a home, saving for retirement, or funding education. Investors can benefit from the fund’s potential for steady growth and wealth creation by staying invested for at least three to five years.
• Balanced Investment Approach: Hybrid funds balance equity and debt allocation, offering the best of both segments. The equity portion helps generate wealth, while the debt component cushions against market volatility, helping maintain stability even during uncertain market phases.
• Flexible Investment Mix: Each type of hybrid fund has a different combination of equity and debt based on its objective. This flexibility helps cater to different kinds of investors, from conservative to aggressive, depending on their financial goals and risk tolerance.
• Consistent Long-Term Performance: Hybrid funds tend to perform well over longer durations, as the mix of equity and debt enables them to capture growth opportunities while reducing sharp losses during market downturns. They are a good option for investors who can stay invested for at least three to five years.

How Does a Hybrid Mutual Fund Work?

Hybrid funds invest primarily in two asset classes, equity and debt, to maintain a balance between growth and stability. Equity investments have the potential to deliver higher returns but are more volatile, as unpredictable market factors influence them. Debt investments provide relative stability and predictable income potential through exposure to government securities, high-rated corporate bonds, and money-market instruments.

By combining these two asset classes, hybrid funds reduce overall risk while aiming to enhance returns. In Dynamic Asset Allocation Funds, the fund manager adjusts the proportion of equity and debt based on valuation and market trends. At the same time, other hybrid categories periodically rebalance their portfolios within the permitted ranges. This balance allows investors to benefit from the growth potential of equities while maintaining stability through debt, supporting steady and risk-adjusted performance over time.

Types of Hybrid Mutual Funds

Hybrid funds come in different categories based on how they allocate assets between equity and debt. Each type caters to specific investor goals and risk levels. Below are the main types of hybrid mutual funds available in India:

1. Conservative Hybrid Fund

   In this type of fund, 10% to 25% of the total assets are invested in equity and equity-related instruments, while 75% to 90% are allocated to debt securities. The debt portion usually includes fixed-income options such as treasury bills, corporate bonds, commercial papers, and certificates of deposit. These funds suit investors looking for stable returns with minimal market risk.

2. Balanced Hybrid Fund

   Balanced hybrid funds invest between 40% and 60% of their total assets in equity and debt. This even mix helps balance risk and reward effectively. They are best suited for investors seeking long-term capital appreciation while reducing volatility through exposure to debt instruments.

3. Aggressive Hybrid Fund

   These funds allocate 65% to 80% of their portfolio to equities and 20% to 35% to debt. The higher equity exposure offers the potential for better returns, while the debt portion provides stability. Aggressive hybrid funds are suitable for investors with a moderate to high-risk appetite who can stay invested for the long term.

4. Dynamic Asset Allocation / Balanced Advantage Fund

   This category dynamically adjusts its allocation between equity and debt based on market trends. Fund managers can vary equity and debt allocation widely within scheme-specific limits depending on valuation and risk indicators. Such funds are suitable for investors seeking flexibility and automatic asset rebalancing without having to monitor market conditions closely.

5. Multi-Asset Allocation Fund

   These funds invest at least 10% of their portfolio in at least three asset classes, typically equity, debt, and gold. This approach provides broad diversification and helps protect the portfolio from market fluctuations in any segment.

6. Arbitrage Fund

   Arbitrage funds invest at least 65% of assets in equity and equity-related instruments using arbitrage strategies to lock in price differences between cash and derivative markets. They aim to generate low-risk returns, making them suitable for conservative investors seeking stable short-term performance.

7. Equity Savings Fund

   Equity savings funds combine investments in equity, debt, and arbitrage positions. They maintain a balanced mix of hedged and unhedged equity exposure as specified in their Scheme Information Document (SID). These funds offer tax efficiency similar to equity funds while managing risk effectively through partial hedging.

Note: As per SEBI rules, an Asset Management Company must choose between offering a Balanced Hybrid Fund or an Aggressive Hybrid Fund category, and cannot have both.

How to Pick the Best Hybrid Mutual Fund?

Choosing the right hybrid fund depends on your goals, risk appetite, and investment period. Here are key points to help you make an informed decision:

• Assess Your Risk Tolerance: Identify how much risk you are comfortable taking. Equity-heavy hybrid funds are suited for investors with higher risk appetites and long-term goals, while debt-oriented funds fit conservative investors or short-term objectives.
• Match with Your Investment Horizon: Choose the fund type based on your financial goals and duration. For goals beyond five years, go for equity-oriented hybrid funds; opt for conservative or balanced options for shorter periods.
• Check Fund Performance: Analyse the fund’s historical returns over the past 3–5 years. Focus on consistency rather than short-term highs, indicating stable performance across market cycles.
• Evaluate Fund Management: Review the fund manager’s experience, strategy, and track record. Skilled management ensures effective allocation between equity and debt based on market trends.
• Compare Expense Ratios: Look for funds with lower expense ratios, as this reduces overall costs and helps improve long-term returns.
• Review Portfolio Composition: Check how much of the portfolio is allocated to equity, debt, and other assets to ensure it aligns with your financial objectives and risk profile.

How Should You Invest in a Hybrid Mutual Fund?

Investing in hybrid mutual funds is a simple way to balance growth and income in your portfolio. You can start investing through two main methods:

1. Direct Investment with the AMC

   Below are the steps to invest directly through an Asset Management Company (AMC):

   • Visit the AMC Website: Go to the official website of your chosen AMC and look for its hybrid fund section.
   • Explore Fund Options: Review the available hybrid schemes, comparing performance and investment objectives.
   • Complete KYC: Complete the mandatory Know Your Customer (KYC) process by submitting identity and address proofs.
   • Register Online: Create an investor account on the AMC portal for direct transactions.
   • Choose a Fund: Select the hybrid fund that aligns with your financial goals and risk profile.
   • Invest: Proceed to invest online through net banking, UPI, or visit an authorised branch for offline submission.

2. Through an Online Investment Platform

   Below are the steps to invest through a registered online platform:

   • Sign Up: Create an account on a SEBI-registered online investment platform or mobile app.
   • Complete KYC: Upload your documents and complete KYC verification digitally.
   • Access Multiple AMCs: Browse hybrid fund options from different AMCs available in one place.
   • Compare Funds: Use tools to evaluate returns, risk ratios, and past performance before choosing.
   • Select an Investment Mode: Opt for SIP for regular investing or a lump sum for a one-time investment.
   • Confirm & Track: Complete payment and monitor your investments through the platform dashboard.

Tax Implications on Hybrid Funds

A mutual fund is treated as an equity-oriented scheme if it invests at least 65% of its assets in equity and equity-related instruments.

• Short-Term Capital Gains (STCG): For equity-oriented hybrid funds, gains from units held up to 12 months are taxed at 20% plus cess for sales on or after 23 July 2024, and at 15% plus cess for sales made before that date.
• Long-Term Capital Gains (LTCG): For equity-oriented hybrid funds, gains from units held for more than 12 months are taxed at 12.5% plus cess for sales on or after 23 July 2024, and 10% plus cess for sales made before that date. LTCG up to ₹1.25 lakh in a financial year is exempt.
• Non-equity-oriented hybrid funds: For units held for more than 24 months, LTCG is taxed at 12.5% plus cess without indexation (for investments made after 23 July 2024). Short-term gains are added to income and taxed at the investor’s slab rate.
• Income Distribution cum Capital Withdrawal (IDCW): Taxable at the investor’s applicable income-tax slab. A 10% TDS is deducted if the total dividend (IDCW) from that AMC exceeds ₹10,000 in a financial year for FY 2025-26 onward.

Key Takeaways

Hybrid funds provide a balanced investment avenue by combining equity and debt instruments in a single portfolio. They benefit investors seeking moderate risk with the potential for steady, long-term returns. The equity portion helps create wealth, while the debt component ensures stability during market fluctuations. These funds offer diversification, flexibility, and consistent performance, making them suitable for beginners and experienced investors. With options ranging from conservative to aggressive and dynamic allocation funds, investors can select one that matches their goals, risk appetite, and investment horizon for balanced long-term growth.