Focused Fund

What are Hybrid funds?

Hybrid funds are mutual fund schemes that are characterized by diversification within two or more asset classes e.g. equity, fixed income, gold etc. Hybrid funds, also known as asset allocation funds, offer investors exposure to multiple asset classes and risk diversification thereof through a single investment. There are several types of hybrid funds with varying risk levels ranging from conservative, high risk to very high risk profiles.

Hybrid Funds

1. Aggressive Hybrid Funds

  • Mutual fund schemes with a larger allocation to equity or equity related securities
  • Primarily invest 65%-80% in equity & equity related securities and 20%-35% debt & debt related securities
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2. Equity Savings

  • Suitable for investors with moderate risk appetites
  • Less risky than aggressive hybrid funds like Hybrid Equity Funds or Balanced Funds
  • The main advantages are low volatility and income
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3. Arbitrage Funds

  • Aims to generate Arbitrage profits by exploiting price differences of the same underlying assets in different capital market segments
  • Also invest in debt and money market instruments
  • Invests at least 65% of their assets in equity and equity-related securities(e.g. stock futures ,index futures,etc )
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How does a Hybrid Fund works

Hybrid funds endeavour to create a balanced portfolio to offer capital appreciation and regular income to its investors in the medium to long-term. The fund manager creates investment portfolio consisting of minimum two or more asset classes in varying proportions according to the scheme’s investment objective. Further, the fund manager also buys or sells assets if the market movements are favourable and also to rebalance the portfolio assets based on targeted asset allocations.

Who should invest in a Hybrid Mutual Fund

Hybrid funds are considered to be safer than pure equity mutual funds but a bit riskier than debt funds. Hybrid funds can offer better returns than debt funds and can be a preferred choice of low-risk, moderate or moderately high risk investors. Also, new investors who are shaky about stepping into the equity markets can go for hybrid funds as the debt component in the hybrid funds offer stability while they can test the equity ‘waters’ by not investing in the markets directly or through pure equity funds. This allows investors to make the most out of equity investments while protecting themselves against the volatility in the market.

Features and Benefits of Hybrid Funds

  • Hybrid mutual funds offer asset allocation benefits. Through asset allocation investors can balance risk and return, i.e. provide investors opportunity to get optimum returns while limiting volatility. A number of studies have proven that asset allocation can be one of the effective ways of achieving financial goals.
  • The equity component of hybrid funds can generate higher potential returns in the long term through the equity component while the debt component aims to provide stability and reduce volatility.
  • Hybrid funds provide automatic rebalancing of assets as per the fund mandate. Rebalancing of assets ensures that the asset allocation of your investments do not deviate from the targeted asset allocation despite market movements. Portfolio rebalancing is important since it reduces risk and also enables investors to aim for superior risk adjusted returns.
  • Since hybrid funds may invest in low volatility asset classes e.g. debt, gold etc. in addition to equity, they are less volatile compared to pure equity funds and as such, are suitable for first time investors.
  • Hybrid funds enjoy tax advantage. Funds which have 65% equity component in its portfolio are taxed as equity funds and those with less than 65% equity component are taxed as debt funds. Long term (investments held for greater than 1 year) capital gains from equity oriented hybrid funds are tax free up to Rs 1 Lakh in a financial year. Long term capital gain over Rs 1 Lakh is taxed at 10%. Short term (investments held for less than 1 year) capital gains are taxed at 15% for equity oriented hybrid funds.
    Long term (investments held for more than 3 years) capital gains from debt oriented hybrid funds are taxed at 20% after allowing indexation. Short term (investments held for less than 3 years) capital gains are clubbed with investors total income and taxed according to the slab applicable.
    While conservative hybrid funds are definitely taxed as debt funds, some other hybrid funds e.g. dynamic asset allocation funds, multi asset funds, which have the flexibility of investing more than 35% in debt can also be taxed as debt funds depending on their average asset allocations. You should refer to the scheme information document (SID) or consult with your mutual fund distributor regarding the tax treatment of hybrid schemes before investing.

Hybrid Fund Categories

Hybrid mutual funds offer various types of funds suiting investors risk profile, investment time horizon and financial goals. Investors with lower risk appetites can invest in funds with debt allocations, while those with higher risk appetite can invest in funds with higher equity allocations. According to SEBI, there are seven hybrid fund categories according to their asset allocation mandates (please see the table below).


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*By Mirae Asset Knowledge Academy

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Disclaimer: The calculators are based on assumed rate of returns and meant for illustration purposes only. The calculators are designed to assist you to get a better understanding on how returns would have panned out in various scenarios. This calculator alone is not sufficient and shouldn’t be used for the development or implementation of any investment strategy. In the preparation of the calculator, Mirae Asset Mutual Fund (MAMF) has tied up with Advisorkhoj who have developed and integrated the calculator with our website. The calculator uses information that is publicly available and information developed in-house. Information gathered and material used in this calculator is believed to be from reliable sources. MAMF however does not warrant the accuracy, reasonableness and/or completeness of any such information. The examples do not purport to represent the performance of any security or investments. It is neither an investment advice nor should it be construed as indicative of any of the schemes of Mirae Asset Mutual Fund. Invest as per your risk appetite and time horizon. In view of individual nature of tax consequences, each investor is advised to consult his/ her own professional tax advisor before taking any investment decision. Contact your financial advisor for detailed insight into the investment advice. Mirae Asset Global Investments (India) Private Limited (the AMC) shall have no responsibility/liability whatsoever for the accuracy or any use or reliance thereof of such information. The AMC, its associate or sponsors or group companies, its Directors or employees accepts no liability for any loss or damage of any kind.

Mutual Fund investments are subject to market risks, read all scheme related documents carefully.