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There are various types of mutual funds available in the market, and these can be categorised based on their composition and investment style. If you want to invest in mutual funds, the following are your major options. You can invest in mutual funds online, once you choose your pick from these different types of mutual funds

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What are Hybrid Mutual Funds?

Hybrid mutual funds invest in both equity and debt asset classes as per the investment objective and mandate of the fund. This helps you benefit from diversification. If you want the growth potential of equity and the stability of debt, a hybrid mutual fund is an ideal investment option for you.

One of the popular hybrid funds is the Balanced Advantage Fund, which automatically allocates between equity and debt depending on market trends. This dynamic allocation helps balance the portfolio and aims to optimize returns across different market conditions. Hybrid funds are an ideal investment option for new investors looking for a mix of growth and stability.

What are the Different Types of Hybrid Funds?

Here are the various types of hybrid mutual funds you can consider investing in:

Conservative Hybrid Funds – Primarily invest in debt instruments (75-90%) with a smaller allocation to equity (10-25%) to offer stability with limited growth potential.
Balanced Hybrid Funds – Allocate 40-60% in equity and the rest in debt, maintaining a balanced risk-reward ratio.
Aggressive Hybrid Funds – Invest 65-80% in equities and the remaining in debt, making them suitable for investors willing to take higher risks for better returns.
Dynamic Asset Allocation Funds (Balanced Advantage Fund) – Adjust equity and debt allocation dynamically based on market conditions, reducing risk during market downturns.
Multi Asset Allocation Funds – Invest in at least three asset classes, such as equity, debt, and gold, ensuring diversification across multiple asset categories.
Arbitrage Funds – Take advantage of market inefficiencies by simultaneously buying and selling securities in different markets, aiming for low-risk returns.
Equity Savings Funds – Invest in a mix of equity, debt, and arbitrage strategies, offering moderate risk with lower volatility compared to pure equity funds.

For a detailed understanding, read this blog: What Is a Hybrid Fund – Types, Benefits, and Uses

How do Hybrid Funds work?

Hybrid mutual funds combine equity and debt investments in varying proportions, as per SEBI’s guidelines, to create a balanced portfolio. The allocation between equity and debt depends on the specific type of hybrid fund. Some funds may have a higher equity allocation for growth potential, while others may lean towards debt for stability and lower risk.

Hybrid funds cater to different risk appetites, making them suitable for conservative, moderate, and aggressive investors looking for a diversified and balanced approach to investing.

How do Hybrid Funds perform?

Hybrid mutual funds invest in multiple asset classes, primarily equity and debt, in proportions defined by SEBI. This asset allocation strategy helps balance risk by offsetting the performance of one asset class with another. For example, when equity markets are volatile, the debt component provides stability, and when equity performs well, it enhances returns. This diversification reduces overall risk and creates a well-balanced portfolio suitable for various market conditions.

Since hybrid funds dynamically adjust their allocations, they aim to deliver steady and consistent growth while protecting capital during market downturns. Their performance depends on factors such as market trends, asset allocation, and the fund manager’s investment strategy.

Are Aggressive Hybrid Funds and Balanced Advantage Funds the same?

Aggressive Hybrid Funds and Balanced Advantage Funds (BAFs) are different types of hybrid funds with distinct investment strategies.

Aggressive Hybrid Funds: These funds typically invest 65-80% in equity and 20-35% in debt. The allocation remains relatively fixed, providing high growth potential with some risk mitigation from debt exposure. They are suitable for investors with a moderate to high risk appetite looking for long-term capital appreciation.
Balanced Advantage Funds (BAFs): Also known as Dynamic Asset Allocation Funds, these funds do not have a fixed equity-to-debt ratio. Instead, they adjust their allocations dynamically based on market conditions. For instance, they may increase equity exposure during bullish markets and shift towards debt in bearish phases to reduce volatility. This flexibility helps manage risk better and aims to optimize returns across different market cycles.

In summary, Aggressive Hybrid Funds follow a structured allocation, whereas Balanced Advantage Funds offer a dynamic approach to asset allocation, making them more adaptable to changing market conditions.

How are Hybrid Funds taxed?

Taxation depends on the fund’s composition:

Equity-oriented hybrid funds (investing 65% or more in equities) are taxed like equity mutual funds.
Debt-oriented hybrid funds (investing 60% or more in debt securities) are taxed like debt mutual funds.

What is the difference between a Balanced Fund and a Balanced Advantage Fund?

Balanced Fund: Follows a fixed allocation between equity and debt.
Balanced Advantage Fund: Dynamically adjusts the allocation based on market conditions.

To learn more, read this blog: Balanced Fund vs. Balanced Advantage Fund

Can we redeem Hybrid Mutual Funds anytime?

Yes, you can redeem your investments in open-ended hybrid mutual funds anytime via the AMC website or your broking account. The money will be credited to your registered bank account as per the redemption timeline of the respective fund.

What are Hybrid Mutual Funds?

What are the Different Types of Hybrid Funds?

Here are the various types of hybrid mutual funds you can consider investing in:

Conservative Hybrid Funds – Primarily invest in debt instruments (75-90%) with a smaller allocation to equity (10-25%) to offer stability with limited growth potential.
Balanced Hybrid Funds – Allocate 40-60% in equity and the rest in debt, maintaining a balanced risk-reward ratio.
Aggressive Hybrid Funds – Invest 65-80% in equities an......

As per SEBI mandate, hybrid mutual funds can invest up to 65-80% in equity and 20-35% in debt. This gives the Fund Manager flexibility to invest in equity and debt as per the market movement thereby aiming to provide portfolio appreciation as well as protection.

Hybrid mutual funds invests in multiple asset classes in the percentage as per the SEBI mandate. This helps to balance risk and performance of one asset class with performance of other asset class thereby balancing the overall portfolio.

Balanced fund is a type of hybrid fund which invests up to 40-60% in equity and debt depending on the market conditions. The debt to equity ratio is pre decided in balanced funds.

Hybrid funds are taxed as per the composition of their portfolio. Equity oriented hybrid funds are taxed as per taxation of equity mutual funds and debt-oriented hybrid mutual fund are taxed as per the taxation of debt mutual fund. If a particular hybrid invests 65% of it’s assets in equity and equity related securities, it is considered as equity-oriented hybrid fund and funds which invest 60% of assets in debt securities, are taxed as debt oriented mutual funds.

Balanced fund has a pre-decided ratio to invest in equity and debt whereas Balanced Advantage Fund dynamically alters the proportion (within the defined mandate) of equity and debt as per the market conditions. To learn more on the differences, read this blog

Yes, you can withdraw your investments from open – ended hybrid mutual funds anytime through the AMC website or through your broking account. Money will get credited to your registered bank account as per the redemption timeline of the respective fund.