What are the Best Hybrid Mutual Funds? – Definition, Types & Benefits of Hybrid Funds
If you’re looking for a way to invest your money that balances risk and return, hybrid funds may be a great option. In this blog, we will explain hybrid mutual funds, their types, the benefits, and the associated risks of investing in them.
What are Hybrid Funds?
Hybrid mutual funds are types of mutual funds in India that invest in stocks and bonds, typically in a ratio that reflects the fund’s investment objective. Unlike pure equity funds that invest only in stocks or debt funds that invest only in bonds, a hybrid mutual fund offers a combination of the two.
The best hybrid mutual funds are designed to provide investors with the benefits of both shares and bonds. Shares may offer the potential for higher returns, but they can also come with risks.
Additionally, bonds may provide a fixed-income stream and lower risk. Combining these two asset classes can help manage risk while potentially providing higher returns. Hybrid schemes differ from other types of funds in that they are designed to offer investors a diversified portfolio of both equities and fixed-income securities.
Top 10 Hybrid Mutual Funds
Let’s look at the top 10 hybrid mutual funds below.
| Scheme Name | Sub-Sector | AUM (Rs. in Cr) | CAGR 3Y (%) | CAGR 5Y (%) |
|---|---|---|---|---|
| Quant Multi Asset Fund | Multi Asset Allocation Fund | 3,152.60 | 22.23 | 29.30 |
| Bank of India Mid & Small Cap Equity & Debt Fund | Aggressive Hybrid Fund | 1,053.73 | 19.60 | 28.14 |
| JM Aggressive Hybrid Fund | Aggressive Hybrid Fund | 719.68 | 24.40 | 25.22 |
| Quant Absolute Fund | Aggressive Hybrid Fund | 2,198.84 | 14.86 | 24.60 |
| ICICI Pru Equity & Debt Fund | Aggressive Hybrid Fund | 40,203.38 | 20.08 | 21.87 |
| ICICI Pru Multi-Asset Fund | Multi Asset Allocation Fund | 50,987.95 | 20.37 | 21.23 |
| Mahindra Manulife Aggressive Hybrid Fund | Aggressive Hybrid Fund | 1,502.95 | 18.12 | 21.00 |
| HDFC Balanced Advantage Fund | Balanced Advantage Fund | 95,569.87 | 23.09 | 20.75 |
| Edelweiss Aggressive Hybrid Fund | Aggressive Hybrid Fund | 2,267.39 | 19.38 | 19.95 |
| Kotak Equity Hybrid Fund | Aggressive Hybrid Fund | 6,815.47 | 17.40 | 19.62 |
Disclaimer: Please note that the above table is for educational purposes only, and is not recommendatory. Please do your own research or consult your financial advisor before investing. The data is derived from Tickertape Stock Screener and is subject to real-time updates.
Note: The data on the top 10 hybrid mutual funds in India list is from 24th December 2024, and the data is derived from Tickertape Mutual Fund Screener, using the following parameters:
- Category: Hybrid
- 5Y CAGR: Sorted from Highest to Lowest
🚀 Pro Tip: You can use Tickertape’s Stock Screener to research and evaluate stocks with over 200+ filters and parameters.
How Does a Hybrid Fund Work?
The best mutual funds in India in the Hybrid category seek to achieve a well-balanced investment portfolio that can provide investors with consistent income and long-term capital growth. The fund manager can construct the portfolio based on the fund’s investment goals, allocating resources to equities and debt instruments in different ratios. The fund manager can also adjust the portfolio by purchasing or selling assets in response to favourable market conditions.
Types of Hybrid Funds
There are three main types of hybrid mutual funds: conservative, balanced, and aggressive.
- Conservative Hybrid Funds: Best conservative hybrid funds can allocate a larger percentage of their portfolio to fixed-income securities such as bonds and cash. They can provide stable returns with low risk. A conservative investor may typically not prefer to invest in high-risk or volatile investments.
- Balanced Hybrid Funds: These funds may have a balanced allocation between stocks and bonds, typically ranging from 50-70% in equities and 30-50% in fixed-income securities. They aim to balance risk and returns and can suit investors with a moderate risk appetite.
- Aggressive Hybrid Mutual Funds: Aggressive hybrid fund meaning allocating a larger percentage of their portfolio to equities, typically ranging from 70-80%, and a smaller percentage to fixed-income securities. They potentially aim to provide higher returns but can come with higher risk. It can be suitable for investors with a high-risk appetite. These are called equity hybrid funds.
- Arbitrage Funds: The fund manager can purchase equities at lower prices in one market and potentially sell them at higher prices in a different market. The fund manager may always seek arbitrage possibilities to increase the returns on the fund.
Factors to Consider When Choosing a Hybrid Fund
When choosing the best hybrid funds, investors should consider the following factors:
- Risk Tolerance: Investors should consider their risk tolerance when choosing a hybrid fund. Aggressive investors can opt for the top mutual funds in India under the Hybrid category with a higher allocation to equities. However, conservative investors may prefer funds with a higher allocation to debt.
- Investment Goals: When choosing a hybrid fund, investors should consider their investment goals. If the goal is long-term wealth creation, investors can opt for equity hybrid funds, while debt-oriented funds may be more suitable for investors looking for regular income.
- Time Horizon: The investment time horizon is essential when choosing a hybrid fund. An investor with a longer time horizon can opt for funds with a higher equity allocation, while a shorter time horizon may require a higher debt allocation.
- Evaluation of Performance and Expenses: Investors should evaluate a hybrid fund’s performance over some time before investing in it. They should also consider the costs involved, such as management fees, exit load, and other charges.
- Asset Allocation: Hybrid funds invest in equity and debt securities in varying proportions. Investors should consider the asset allocation of the hybrid fund they are considering investing in. An equity hybrid fund should have a higher allocation towards equity, while a debt hybrid fund should have a higher allocation towards debt.
How to Find the Best Hybrid Fund?
Hybrid funds, also called asset allocation funds, may enable investors to access multiple asset classes within a single fund. They can come with various risk levels, allowing investors to tailor their investment mix. The fund manager can divide your investment between equity and debt instruments based on predetermined ratios.
Your preferences, risk tolerance, and financial objectives can determine the proportion of debt to equity in hybrid funds. These funds may balance risk and return, helping you achieve your financial goals. Thus, combining both can also mitigate the adverse effects of a debt or equity market crisis.
Your investment’s equity portion can offer long-term gains, while the debt portion may generate regular income through interest payments.
Who Can Invest in Hybrid Funds?
Hybrid funds can be a good option for investors looking for a balance between returns and risk. They can be suitable for investors seeking regular income and who have a low to moderate risk tolerance.
Additionally, investors who are new to investing or those who do not have the time or expertise to manage their investments can also consider investing in these funds. However, it is important to note that investing in hybrid mutual funds may carry a certain degree of risk. Therefore, one should understand and weigh all the risks involved before making any investment decision.
How to Invest in Hybrid Funds?
You can easily invest in hybrid mutual funds by following these steps:
- To invest in mutual funds, you can visit an equity investment platform such as smallcase or Tickertape.
- The next step would be to research and identify the best hybrid funds to invest in which aligns with your investment thesis. You can easily select and learn more about the best hybrid funds with the help of a financial tool like the Tickertape Mutual Fund Screener. With 50+ pre-loaded filters, it helps you to create a comprehensive list by giving insights about the fund’s performance. Try it now!
- Once you have selected the funds based on different metrics and parameters, go to smallcase.com or the smallcase app, and login via your phone number. Click on ‘Discover‘ and enter the name of the specific mutual fund name in the search bar and hit enter. You can click on ‘invest now’ and select whether you want to invest a lump sum amount or start a SIP and start investing!
Taxation on Hybrid Mutual Funds as per the 2024 Budget
Understanding the latest tax regulations on hybrid mutual funds is crucial for managing your investments efficiently. The Union Budget 2024 has introduced several changes impacting the taxation of hybrid mutual funds. Here’s a detailed breakdown of the new tax rules:
Short-Term Capital Gains (STCG)
For hybrid mutual funds, the tax treatment of short-term capital gains depends on the asset allocation of the fund:
- Equity-Oriented Hybrid Funds (more than 65% in equity): If you sell units within one year, the gains are considered short-term and taxed at 20%.
- Debt-Oriented Hybrid Funds (less than 65% in equity): If you sell units within three years, the gains are considered short-term and taxed according to your income tax slab.
Long-Term Capital Gains (LTCG)
For hybrid mutual funds held beyond the specified holding periods, the tax treatment is as follows:
- Equity-Oriented Hybrid Funds (more than 65% in equity): Gains from units held for more than one year are considered long-term. These gains are taxed at a flat rate of 12.5%, with gains up to Rs. 1.25 lakh being tax-free.
- Debt-Oriented Hybrid Funds (less than 65% in equity): Gains from units held for more than three years are considered long-term and are now taxed at a flat rate of 12.5% without indexation benefits. This change means that the entire gain is taxable at this rate without adjusting for inflation.
Summary
| Type of Fund | Short-Term Capital Gains (STCG) | Long-Term Capital Gains (LTCG) | Indexation Benefit |
| Equity-Oriented Hybrid Funds | 20% for holdings less than 1 year | 12.5% for holdings over 1 year, with gains up to Rs. 1.25 lakh tax-free | Not available |
| Debt-Oriented Hybrid Funds | Taxed as per income tax slab for holdings less than 3 years | 12.5% for holdings over 3 years | Not available |
Benefits of Investing in Hybrid Funds
These offer several benefits to investors, including diversification, lower risk, and the potential for higher returns.
- Diversification: They offer diversification by investing in a mix of stocks and bonds, which helps reduce the risk of loss.
- Potential for Higher Returns: The combination of stocks and bonds in this fund can give higher returns than fixed-income securities alone.
- Convenience: Hybrid mutual funds offer a one-stop solution for investors looking to invest in stocks and bonds.
Risks Associated with Hybrid Funds
Like any investment, a hybrid fund may also come with risks. Some of the risks associated include:
- Market Volatility: The value of the stocks and bonds in the fund can fluctuate based on market conditions.
- Interest Rate Changes: Changes in interest rates can impact the value of fixed-income securities in the fund.
- Credit Risk: Hybrid funds that invest in bonds carry the risk of default by the issuer.
To Wrap It Up…
In conclusion, hybrid mutual funds offer investors a balanced investment option combining the benefits of stocks and bonds. By investing in a hybrid fund, investors can potentially achieve higher returns with less risk. To choose the best hybrid mutual fund, investors should consider their investment goals, risk tolerance, and time horizon.
For those who want to diversify their portfolios & yield significant returns, don’t forget to discover 500+ readymade portfolios on smallcase. So start building you long term portfolio with smallcases today!
FAQs
Hybrid funds are funds that invest in a combination of different asset classes, typically a mix of both stocks (equity) and bonds (debt).
The best hybrid mutual funds list you can buy in India 2024:
(a) Quant Multi Asset Fund
(b) Bank of India Mid & Small Cap Equity & Debt Fund
(c) JM Aggressive Hybrid Fund
(d) Quant Absolute Fund
(e) ICICI Pru Equity & Debt Fund
Note: This information is provided for educational purposes and is not intended as a recommendation or endorsement.
Hybrid funds invest in both equity and debt assets, while balanced funds invest in both in a relatively equal proportion.
It is important to note that past performance is not a guarantee for hybrid funds returns. Hybrid funds are also subject to market risks, so please do your own research and/or consult a financial advisor before investing.
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