Written By :Pitch N Hire

Fri Apr 07 2023

5 min read

What Are Mutual Funds? Everything You Need To Know About Hybrid Funds

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Earning is essential in life but saving and investment can help you in retaining as well as increasing your earnings. You can retain your earnings by saving them. Saving is part of your earnings that you don’t spend. Whereas you can have an increase in your earned money if you start investing it. You can invest your money in different securities such as bonds, stocks, real estate or mutual funds. By investing in these assets, you can have growth, and your income will increase. For getting more benefits, it is best to invest in mutual funds. It is one of the investment options where you can invest your money along with other investors having a common goal. It is a pooled investment managed by the fund manager. The money invested by you is used to buy other securities such as stocks, bonds, etc. 

The best part of mutual funds is that you get expert advice on securities. So, you can consult experts, get information regarding securities and where you should invest. You should invest in mutual funds because it comes at a low cost and it also provides you with the benefit of investing in small amounts at regular intervals under systematic investment plans. 

Mutual Funds is a flexible way of investing money and creating a diversified investment portfolio. There are two schemes under which you can invest in mutual funds. They are open-ended mutual funds and close-ended mutual funds. In the first scheme, you can invest, enter or exit from the plan at any point in time. 

While in the second case, there is a fixed maturity period. In this scheme, you can only invest during the initial period i.e., the NFO period. A mutual fund is of many types. It is classified into various categories such as Equity mutual funds, Debt mutual funds, Hybrid Mutual funds, Liquid funds, Balanced Funds, and Gilt funds etc. In this article, we will specifically discuss hybrid funds. Now, you must be thinking about what hybrid funds are? Below is the answer to all your questions.

Meaning and Types of Hybrid Funds 

If you are planning to invest in hybrid funds then you should first know what hybrid funds are. It is a mutual funds scheme that allows you to invest in more than one security. Hybrid Mutual Funds provides you with an option to invest your money in a combination of debt and equity securities. It balances the risk and returns factors of both the securities i.e., equity and debt by creating diversification in distinct asset classes. This investment portfolio invests in numerous asset classes. It is also called asset allocation funds. It provides you with an opportunity to invest in more than one asset class with a single fund.

Since the investment is flexible, it enjoys the benefits of both the securities. Therefore, you can get a higher return in the long run because of equity and resist the market volatility because of the debt component. Hybrid mutual funds provide you with higher returns and help you in achieving your investment objectives. If you are a low-risk investor or a new investor then investing in this type of mutual fund is the best option. 

Once you understand what are hybrid funds, you should also be aware of the types of hybrid mutual funds. It is classified into various categories such as:

  • Equity-oriented, it invests 65% of the total assets in companies equity instruments in many market capitalizations and sectors. The rest 35% are invested in debt and money market instruments.
  • Debt-oriented, it invests 60% of the total assets in fixed-income securities such as bonds, government securities and debentures etc. The rest 40% are invested in equity instruments.
  • Balance funds invest a minimum of 65% of the total assets in equity and its related instruments and the remaining in cash and debt securities.
  • Monthly income plans prime investment is done in fixed-income securities and a small portion of the corpus is allocated to equity and its related instruments.
  • Arbitrage Funds are those hybrid funds that buy stocks in one market at a lower price and sell them in another market at a higher price.

Factors to Keep in Mind Before Investing in Hybrid Funds 

Here are some of the most essential factors that one should remember before investing in hybrid funds


You must analyze the investment portfolio of the scheme. This will help you in understanding the risk factor because these funds carry investment risk in proportion to the assets allocation in the portfolio. There are various types of asset allocation funds and each one has a different risk and returns factor attached to it. For instance, before investing in equity-oriented, it is important to look at the type of stocks owned by the fund to understand the risk factor. 

Types of Hybrid Funds

There are different types of hybrid fund and each has a different risk, return factor and distinct feature. Therefore, you must know all these kinds of funds before investing in them. You should match your investment goals with the benefits provided by each one of them and choose the one that fulfils your objectives.

Financial Objectives 

You must know and understand your investment objective before investing in any scheme. If you have a clear understanding of this factor, you will be able to analyze the benefits associated with each scheme. This will help you in aligning your financial objectives with the schemes.

Tenure of Investment 

Before investing in the scheme, you must consider the tenure factor of the investment. If you are ready for medium and long-term investment then only you should invest in the hybrid fund. For long-term investment, an equity-oriented hybrid fund is best and for medium-term investment, balanced and debt-oriented funds are the best option.


Before investing in the hybrid fund, you must consider the tax factor associated with different kinds of the fund. For instance, in the case of an equity hybrid fund, a tax rate of 10% is charged on long-term capital gains over Rs 1 lakh and 15% is charged on short-term capital gains in a financial year. In the case of a debt hybrid fund, a tax rate of 20% is charged on long-term capital gains.


Hybrid funds are a type of mutual funds investment that is a mixture of debt and equity investment. It is a kind of investment that is made in more than one asset. It is best for those investors who want a stand-alone option. Once you are aware of what are hybrid funds and their different types, you will be able to invest in the right scheme. This way you can achieve your financial objective.

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