10 Best Hybrid Funds (2024) – Meaning, Types and Taxation

Last Updated on Jul 30, 2024 by Anjali Chourasiya

The term ‘mutual funds’ is pretty popular, but did you know there are several types of mutual funds? One of them is hybrid funds which invest in both debt and equity. The portfolio of a hybrid fund would consist of equity, debt, bonds, money market instruments, and the like. In this article, let’s explore the top 10 hybrid mutual funds, their features, types, benefits, taxation and more.

What are hybrid funds?

Hybrid funds are a type of mutual fund that is typically a combination of equity and debt investments. In essence, a hybrid fund invests in two or more asset classes and diversifies across a mix of bonds, stocks, commodities and other securities. These funds are great for investors who want a carefully crafted portfolio having exposure to both debt and equity. 

With hybrid funds, you, as an investor, can avoid the risk of concentration in the portfolio and achieve a calculated blend of both debt and equity that offer higher returns alongside some level of capital protection than what a single debt or equity fund offers. 

List of top 10 hybrid mutual funds

Here’s a list of the best hybrid mutual funds in India in 2023. 

Note: The top hybrid mutual funds listed here are as of 12th April 2023 and derived using Tickertape Mutual Fund Screener. The parameters used to generate these are as follows: 

• Category: Hybrid
• CAGR 3Y
• CAGR 5Y – sorted from high to low

1. Quant Multi Asset Fund

Launched by Quant Mutual Fund, Quant Multi-Asset Fund is a hybrid mutual fund scheme. As of 11th April 2023, this fund has a NAV (Net Asset Value) of Rs. 86.19. The 3-yr rolling return of this fund was recorded at 34.39%, while the 1-yr absolute returns are 3.29%.

The minimum investment required for Quant Multi Asset Fund is Rs. 5,000, and SIP is Rs. 1,000. 

2. Quant Absolute Fund

This aggressive hybrid mutual fund was launched by Quant Mutual Fund. As of 11th April 2023, this fund has a NAV of Rs. 293.74. The 3-yr rolling return of this fund was recorded at 33.73%, while the 1-yr absolute returns are 2.16%.

The minimum investment required for Quant Absolute Fund is Rs. 5,000, and SIP is Rs. 1,000. 

3. ICICI Pru Equity & Debt Fund

Launched under ICICI Prudential Mutual Fund, ICICI Prudential Equity and Debt Fund is an aggressive hybrid mutual fund scheme. As of 11th April 2023, this fund has a NAV of Rs. 30.31. The 3-yr rolling return of this fund was recorded at 23.80%, while the 1-yr absolute returns are 5.42%.

The minimum investment required for ICICI Pru Equity & Debt Fund is Rs. 5,000, and SIP is Rs. 100.  

4. ICICI Pru Multi-Asset Fund

This fund was launched by ICICI Prudential Mutual Fund. As of 11th April 2023, this fund has a NAV of Rs. 487.44. The 3-yr rolling return of this fund was recorded at 22.57%, while the 1-yr absolute returns are 9.49%.

The minimum investment required for ICICI Pru Multi-Asset Fund is Rs. 5,000, and SIP is Rs. 100.  

5. Baroda BNP Paribas Aggressive Hybrid Fund

This aggressive hybrid mutual fund was launched by Baroda BNP Paribas Mutual Fund. As of 11th April 2023, this fund has a NAV of Rs. 18.80. The 3-yr rolling return of this fund was recorded at 17.56%, while the 1-yr absolute returns are 2.77%.

The minimum investment required for Baroda BNP Paribas Aggressive Hybrid Fund is Rs. 5,000, and SIP is Rs. 500. 

6. HDFC Balanced Advantage Fund

Launched under HDFC Mutual Fund, HDFC Balanced Advantage Fund is a balanced advantage mutual fund scheme. As of 11th April 2023, this fund has a NAV of Rs. 328.70. The 3-yr rolling return of this fund was recorded at 19.91%, while the 1-yr absolute returns are 11.53%.

The minimum investment required for HDFC Balanced Advantage Fund is Rs. 100, and SIP is Rs. 100.  

7. Edelweiss Aggressive Hybrid Fund

Launched by Edelweiss Mutual Fund, Edelweiss Aggressive Hybrid Fund is an aggressive hybrid mutual fund scheme. As of 11th April 2023, this fund has a NAV of Rs. 40.84. The 3-yr rolling return of this fund was recorded at 18.77%, while the 1-yr absolute returns are 6.77%.

The minimum investment required for Edelweiss Aggressive Hybrid Fund is Rs. 5,000, and SIP is Rs. 500. 

8. Kotak Equity Hybrid Fund

Launched by Kotak Mahindra Mutual Funds, Kotak Equity Hybrid Fund is an aggressive hybrid mutual fund scheme. As of 11th April 2023, this fund has a NAV of Rs. 41.47. The 3-yr rolling return of this fund was recorded at 20.81%, while the 1-yr absolute returns are 3.65%.

The minimum investment required for Kotak Equity Hybrid Fund is Rs. 5,000, and SIP is Rs. 1,000. 

9. Mirae Asset Hybrid Equity Fund

Launched by Mirae Asset Mutual Funds, Mirae Asset Hybrid Equity Fund is an aggressive hybrid mutual fund scheme. As of 11th April 2023, this fund has a NAV of Rs. 22.21. The 3-yr rolling return of this fund was recorded at 16.89%, while the 1-yr absolute returns are 1.70%.

The minimum investment required for Mirae Asset Hybrid Equity Fund is Rs. 5,000, and SIP is Rs. 1,000. 

10. Canara Rob Equity Hybrid Fund

Launched by Canara Robeco Mutual Funds, Canara Robeco Equity Hybrid Fund is an aggressive hybrid mutual fund scheme. As of 11th April 2023, this fund has a NAV of Rs. 246.70. The 3-yr rolling return of this fund was recorded at 17.18%, while the 1-yr absolute returns are 1.66%.

The minimum investment required for Canara Robeco Equity Hybrid Fund is Rs. 5,000, and SIP is Rs. 1,000. 

Features of hybrid mutual funds

1. Hybrid funds invest in a combination of debt and equity instruments. 
2. These funds are known for better risk management.
3. The funds offer diversification at the investor’s discretion.
4. Hybrid funds can be debt or equity-based.
5. A fund manager will manage your investments, percentage of exposure, buying, and selling.
6. There are largely seven different types of hybrid funds.
7. Equity-oriented hybrid funds held for more than a year will attract a 10% LTCG (Long-Term Capital Gains) tax. If the fund is held for less than a year, a 15% STCG (Short-Term Capital Gains) tax will be applicable.
8. Debt-oriented mutual fund gains are taxed as per the income slab. 

How do hybrid mutual funds work?

Also known as asset allocation funds, hybrid funds allow investors to invest in multiple asset classes via a single fund. They have varying levels of risk associated with them, which helps investors determine what the right mix for them is. The fund manager of a hybrid fund will allocate your money in predetermined ratios in equity and debt instruments.

The percentage mix of debt to equity in hybrid funds depends on your choice, risk profile, and financial goal. These funds give you the best of both worlds and help you achieve your financial goal with the right amount of risk. A combination of both these can also offset the negative repercussions of a crisis in the debt or equity market.

The equity portion of your investment will give you gains in the long run, while the debt portion of your investment will give you regular income via its interest-generating mechanism.

Types of hybrid mutual funds

The types of hybrid funds are determined on the basis of the quantum of exposure the fund has to the chosen underlying assets. The most popular types of hybrid funds are:

1. Equity-oriented hybrid funds

These funds invest at least 65% of the money in equity instruments and the rest in the debt and money market.

2. Debt-oriented hybrid funds

These funds invest at least 60% of their assets in debt instruments like bonds, debentures, and government securities.

3. Balanced hybrid funds

This fund balances the equity and debt portion of your investment and invests a minimum of 40% and a maximum of 60% in either of the asset classes. A benefit of investing in a balanced fund is that it uses equity and debt components to leverage current market scenarios to generate wealth in the long term.

4. Arbitrage funds

These funds buy stocks at a lower price in a particular market and sell them at a higher price in another market. The majority of the investment in these funds is made in equity instruments. When arbitrage opportunities are unavailable, these funds invest in debt securities and cash markets, making the investment relatively sound and safe.

5. Multi-asset allocation fund

The best way to invest is not to put all your eggs in one basket. Multi-asset allocation funds do exactly this. Invest in multiple asset classes like gold, equity, debt, and others.

Benefits of hybrid mutual funds

Hybrid mutual funds offer dual benefits of debt and equity to investors and help diversify the portfolio. Diversification may increase when the fund manager allocates the portfolio in the equity portions across small, mid, and large-cap segments. Hybrid funds are one of the most convenient forms of investment and help lower the risk involved when seeking equity exposure.

With hybrid funds, investors with different risk tolerances can choose how they want to invest their money. There is a range of hybrid funds one can choose from. They offer higher returns than debt funds and have been shown to perform at par with equity funds as well. 

The expense ratio of a hybrid fund is also lower than isolated equity funds. Not to mention, hybrid funds allow investment via the SIP method, which is the most suitable method for the salaried class.

Nevertheless, the biggest advantage is the ability of hybrid mutual funds to balance risk and return. They are great for meeting short-term financial goals and investing for the long term as well.

Who should invest in a hybrid fund?

Hybrid funds are a fantastic choice for new investors who don’t want to take a lot of risk at the beginning of their investment paths. First-time investors get adequate exposure to equity funds with minimal risk since they are much safer than equity funds.

Less conservative investors can also opt for hybrid funds to take just the right amount of risk and also have a cushion against market fluctuations. Budding investors can start their investment journey with hybrid funds to avoid high-risk investment instruments they might not know about.

What to consider before investing in hybrid funds?

1. Risk-return assessment

Based on the type of hybrid fund you opt for, understand the risk associated with it. An equity-oriented hybrid fund will be riskier than a balanced fund or a debt-oriented fund. Remember, no investment in the equity market is risk-free. This is why it is better to exercise caution and choose the proportion of equity and debt funds in a disciplined manner.

2. Investment horizon

Understand your goals and pick a hybrid fund that matches them. For instance, you may want to invest in balanced funds with a dividend option for your retirement.

3. Cost

Like all other funds, hybrid funds also charge a fee to manage your portfolio. When opting for a hybrid fund, one must look for a low expense ratio.

4. Investment strategy

While hybrid funds allow investment in multiple asset classes, there must be a sound strategy for choosing these. Fund managers must carefully select a combination of assets without the investors’ influence.

Taxation on hybrid funds as per the Budget 2024

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.

Summary

Conclusion 

Hybrid funds are those that invest in both – debt and equity. Hybrid funds are an excellent option for investors looking for high returns and stable risk management. The percentage of exposure is in mind with the investor’s risk appetite and investment goals. These funds bring the best of both worlds to investors and can help create long-term wealth.

Before investing, do not forget to visit Tickertape’s Mutual Fund Screener. With over 50 filters, you can compare, study and research the fund of your choice, all in just a few clicks! Tickertape makes your investment journey easy and meaningful! Visit now!

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Anjali Chourasiya

I am a finance enthusiast who loves exploring the world of money through my lens. I’ve been dedicated to building systems that work and curating content that helps people learn.

As an insatiable reader and learner, I’ve spent the last two years exploring the world of finance. With my creative mind and curious spirit, I love making complex finance topics easy and fun for everyone to understand. Join me on my journey as we navigate the world of finance together!

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