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What is Hybrid Fund And it's Benefits

3 Mins 11 Nov 2021 0 COMMENT


There are three basic types of funds in a mutual fund. They are—equity funds, debt funds, and hybrid funds. Depending on your risk-taking capacity and investment objective, you can choose the type of fund you want to invest in. Hybrid funds offer low risk and can provide you with better returns. In this type, you need not invest only in one kind of asset class. Your investment can be tailored as per your goals, time, and suitability. Therefore, in this type of fund, you can invest in equity as well as debt. It is a type of balanced fund that will give you the option of investing in both types of funds. As the name suggests, it will offer you a blend of both, thus striking a balance between your portfolio and your income.

Watch video: https://www.icicidirect.com/knowledge-center/video/mutual-fund/what-are-hybrid-funds


 In these hybrid funds, you can choose the amount of proportion you want to invest in equity and debt, thus offering you the best investment opportunity. If you are a first-time investor worried about facing huge losses, you can make the right choice by selecting the percentage of proportion you want to invest.

There are different kinds of hybrid funds that you need to know about to make this choice. You can choose according to your risk appetite, your medium or long-term goals. These are:

  • Equity-oriented fund:

    In this type of fund, a large proportion of at least 65% is invested in equity, and the remaining per cent is invested in debt such as government securities, bonds, bills, etc. If you are new to the stock market, you can start investing in an equity-oriented fund. This way, you will also get a better chance at wealth maximization without worrying about facing huge losses, which you otherwise face only in equity.
  • Debt-oriented fund:

    In this type of fund, a large proportion of your investment, at least 65%, will be made in debt. If you are the type of investor looking for a regular fixed income with low risk, you may start by investing in debt-oriented funds.
  • Monthly- Income Plans (MIP):  

    This type of fund will offer you more stability in terms of investment. It will generate regular income for you in the form of dividends.  In this type of hybrid fund, only 15-20% is invested in equity, and the rest is in debt.
  • Arbitrage funds:

    In arbitrage funds, your investment is strategically made in equity and debt. It will try to maximize returns for you by buying stock when it is at a low price and selling it at a higher price. The other times, your investment will stick to debt.


Investing in hybrid funds will provide you with more benefits at a lower risk. Here are some of the reasons why should you invest in hybrid funds and what makes them so lucrative:

  • Diversification:

    There’s a very famous saying in the stock market, “Don’t put all your eggs in one basket.” That applies to the case of mutual funds as well. The benefit of investing in a hybrid fund is that it diversifies portfolio and asset allocation. It does not limit your investment to only one type of asset class. Diversification helps you to minimize your financial risks and maximize your capital gains. You can decide the proportion of risk you want to take. This way, you are creating avenues for wealth accumulation in the long term and, at the same time, having consistent returns.
  • Lower-risk:

    You can choose the hybrid fund you want to invest in based on your risk-taking capacity. Hybrid funds offer lower-risk since there is various asset allocation. Since you aren’t focused only on one particular asset, the chances of you incurring high risk are minimal. Your investment is spread across different kinds of support, thus offering a lower risk.
  • SIP:

    SIP refers to Systematic Investment Plan. You to invest small amounts regularly through SIPs. All you have to do is set SIP with your account, and a fixed amount of a small sum will be deducted from your bank every month. It will directly go into the mutual fund scheme of your choice. Therefore, you don’t need a lump sum to start your mutual fund investment journey.

Additional reads: http://www.icicidirect.com/knowledge-center/article/5-things-you-need-to-know-about-hybrid-funds-or-balanced-funds


Hybrid funds will thus provide you with various options, especially as a first-time investor having a low-risk capacity. While choosing a hybrid fund, you need to keep in mind the following—your objective, your time and the risk you can afford. A hybrid fund offers wealth accumulation along with stability. If you are an investor looking to explore new investment horizons, then a hybrid fund is the best type of mutual fund for you. Even with the smallest amount, you can get started on your mutual fund investment journey.


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