Best Hybrid Mutual Funds

Hybrid Mutual Funds are investment options that combine the best of both worlds—equity (stocks) and debt (bonds). They are designed to balance risk and reward, offering investors with a diversified portfolio that can suit various financial goals. These funds are popular among investors who want to achieve growth with a safety cushion, making them a versatile choice in mutual funds. Let’s explore what hybrid mutual funds are, the top-performing ones, and everything else you need to know about them.

What are Hybrid Mutual Funds?

They are investment funds that combine different types of assets, like stocks, bonds, and other securities, into one portfolio. These funds aim to provide investors with growth and income by balancing risk and returns. The mix of equity (stocks) and debt (bonds) makes these funds more versatile, catering to investors who want moderate risk and steady growth. They offer a way to diversify investments, which can help protect against market volatility.

Top 10 Hybrid Mutual Funds in India

Below are the top 10 Hybrid mutual funds:

Overview of Hybrid Mutual Fund

Here's a concise overview of the top 10 hybrid mutual funds based on their performance:

JM Equity Hybrid Fund – Direct (Annual-Bonus): This fund is known for its aggressive investment strategy, primarily focusing on equities while maintaining a smaller portion in debt. It targets high returns with substantial market exposure, best for investors with a higher risk appetite.

HDFC Balanced Advantage Fund Direct-Growth: A popular choice among investors, this fund dynamically adjusts its equity and debt exposure based on market conditions, providing a balanced approach to growth and stability.

Quant Multi Asset Fund: This fund invests across multiple asset classes, including equity, debt, and gold. Its strategy aims to reduce risk through diversification while capitalising on market growth opportunities.

ICICI Balanced Advantage Fund: This fund is actively managed to adjust between equity and debt, depending on market valuations. It seeks to provide consistent returns by balancing risk and reward.

Edelweiss Aggressive Hybrid Fund: This fund focuses primarily on equities and aims for higher capital appreciation. It is complemented by a smaller debt allocation to manage volatility.

Quant Absolute Fund: This fund invests in equities and debt, employing an absolute return strategy focusing on maximising returns regardless of market conditions. It is ideal for aggressive investors.

Nippon India Asset Allocator FoF Fund: This fund of Funds (FoF) invests in other equity and debt funds, optimising asset allocation to achieve balanced growth and income.

HDFC Dynamic PE Ratio FoF Fund: This fund follows a strategy based on the market's Price-to-Earnings (PE) ratio, adjusting its exposure to equities and debt accordingly to minimise risk and enhance returns.

Kotak Equity Savings Fund: It combines equity, debt, and arbitrage opportunities to generate stable returns with lower risk, making it suitable for conservative investors seeking some equity exposure.

Bank of India Conservative Hybrid Fund: This fund is focused on conservative investments. It allocates more to debt and less to equity, providing steady income with minimal risk.

Types of Hybrid Mutual Funds in India

Hybrid mutual funds are classified into varied types. They are:

Equity-Oriented Hybrid Funds: These funds invest more than 65% of their assets in equities and the remaining in debt. They are suited for investors looking for growth with a moderate risk level.

Debt-Oriented Hybrid Funds: These funds invest around 70-90% in debt and the rest in equities. They are best for conservative investors who prioritise stability and income overgrowth.

Balanced Hybrid Funds: These funds aim for a 50-50 balance between equity and debt, offering a blend of growth and stability.

Monthly Income Plans: These hybrid mutual funds mix fixed-income options like bonds with some shares. They aim to earn higher returns than bonds while facilitating regular income through steady returns. They allow monthly withdrawals of profits or reinvesting to grow money.

Arbitrage funds aim to make low-risk gains by buying assets in one market and immediately selling them at higher prices in another market. However, when such risk-free price differences are unavailable, they park money only in fixed deposits or liquid funds like debt funds. So, returns are similar to equity funds, but risks are similar to debt schemes.

Advantages of Hybrid Mutual Funds

Diversification: Hybrid funds spread investments across different asset classes, reducing the risk of loss.

Risk Management: The mix of equity and debt helps balance risk, making them less volatile than pure equity funds.

Regular Rebalancing: Fund managers actively rebalance the portfolio to maximise returns and minimise risk.

Steady Returns: Hybrid funds combine growth and income, making them ideal for moderate-risk investors.

Disadvantages of Hybrid Mutual Fund

Limitations of Hybrid Mutual Funds are as follows:

Moderate Returns: When stock markets rise, hybrid funds may provide lower returns than pure equity funds, as only part is invested in shares.

Higher Management Fees: As fund managers actively adjust equity-debt ratios, operating expenses for hybrid funds are typically higher.

Complex Tax Structure: Taxation on capital gains from hybrid funds varies based on underlying assets, making compliance more complicated when filing returns.

Who Should Invest in a Hybrid Mutual Fund?

Moderately Risk-averse Investors: This category is ideal for those unwilling to take high risks like direct equity but also want better returns than fixed deposits.

First-Time Equity Investors: Good entry point into equity investment through the cushion of debt allocation, lowering risk compared to only shares.

Retirement Planners: Hybrids allow early retirement goal growth potential through equity and later stability of debt closer to vesting age.

Seeking Portfolio Simplification: A single hybrid fund that owns equity, debt, etc., in one basket makes portfolio management easier.

Need Periodic Income: Some hybrid schemes for regular income offer periodic payouts suiting certain financial needs.