Top 10 Hybrid Mutual Funds In India (2022)

Mutual funds

Hybrid mutual funds are mutual fund schemes that invest in multiple asset classes, including debt and equity. The foundation of hybrid equity funds is based on three aspects- diversification, asset allocation, and correlation. Based on the scheme’s goal and asset allocation, there are several types of hybrid funds. To help you choose the right scheme, here’s a list of the 10 best hybrid mutual funds and their categories, benefits, tax implications, etc.  Take a look!

10 Best Hybrid Mutual Funds of 2022

Here is a list of the best hybrid funds in India based on 3-year returns:

*This table is for educational purposes only.

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

Different Types of Hybrid Mutual Funds

There are different types of hybrid funds:

• Aggressive hybrid fund
  As per the rules of the Securities and Exchange Board of India (SEBI), these schemes need to invest at least 65% and a maximum of 80% of the fund corpus in stocks and equity-related instruments. 
  
  The high equity exposure of aggressive funds provides investors with the possibility of earning high returns. That said, the underlying debt instruments cushion the impact of stock market fluctuations. 

• Multi-asset allocation fund
  These hybrid mutual funds must invest in more than two asset classes. Moreover, the proportion of investment in each asset class needs to be at least 10%. Fund managers of these funds decide the asset allocation, keeping in mind the objective that the scheme was set up to achieve. 

• Conservative hybrid fund
  As per SEBI regulations, these funds must allocate 10% to 25% of the investment corpus to stocks and equity-related instruments. The rest of the financial assets, i.e., 75% to 90% of the fund corpus, need to be invested in debt instruments. 
  
  Such schemes are suitable for investors who aim to generate stable income. The equity portion of the portfolio boosts the overall returns of a conservative hybrid fund.

• Arbitrage fund
  Arbitrage is an investment strategy, which involves purchasing securities in the cash market and selling them simultaneously in the futures market to make financial gains. These hybrid equity funds follow this strategy to generate stable returns for investors.  
  
  SEBI’s rules make it mandatory for these schemes to invest 65-100% of the financial assets in equity and equity-related instruments. 

• Balanced hybrid fund
  Balanced hybrid funds allocate at least 40% and a maximum of 60% of the pooled funds to both equity and debt instruments. Note that the fund manager of these hybrid schemes cannot utilise the arbitrage strategy to generate returns for investors. 

• Equity savings fund
  An equity savings fund invests in equity, debt and derivatives with the aim to balance the portfolio risk and returns. These hybrid mutual fund schemes invest a minimum of 65% in equity, while the remaining (10-35%) is invested in debt instruments and derivatives. 

Also Read: Explained: XIRR Meaning In Mutual Funds, Importance & Return Calculation 

Benefits of Investing in the Best Hybrid Mutual Funds

Here are some of the advantages of investing in a hybrid mutual fund:

Exposure to more than a single asset class

Since hybrid equity funds allocate the financial assets to multiple asset classes, individuals can get exposure to multiple asset classes by investing in a single mutual fund scheme. 

Active management of portfolio risk

Fund managers of hybrid funds alter the proportion of investment in equity and debt, which are non-correlated asset classes to manage portfolio risk. 

Portfolio diversification 

Hybrid funds offer portfolio diversification by investing in multiple asset classes and their sub-classes. For example, the equity portion may comprise stocks across different market capitalisations. 

Suitable for various risk profiles

There are different options available for investors with low, moderate or high-risk appetites. An investor with low risk-bearing ability may consider investing in funds that primarily invest in debt, for example, the Navi Regular Savings Fund. 

On the flip side, individuals with a high risk-bearing capacity can choose to invest in an equity-oriented hybrid mutual fund scheme, such as the Navi Equity Hybrid Fund.

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Access to professional expertise

Fund managers with years of experience in the investment world help rebalance the portfolio of such mutual fund schemes as per the market scenario. On account of this, investors do not have to monitor the performance of securities all the time. 

Moreover, individuals don’t have to make investment decisions, which can be challenging considering the dynamic nature of the market. 

How to Invest in Best Hybrid Funds Online?

Investing in an open-ended hybrid scheme involves:

• Checking the benchmark index of the scheme
• Choosing the desired plan
• Checking the minimum investment and additional application amount 
• Checking the expense ratio and exit load
• Assessing historical data of the scheme’s return generation 

Features of Best Hybrid Mutual Funds

Hybrid mutual funds have a higher yield potential than fixed deposits or other asset types. Some of their features include:

Higher returns

Hybrid mutual funds are essentially more rewarding than fixed deposits (FDs). Unlike FDs, they are a mixture of equity and debt funds. While investors can expect solid returns from equity, debt funds provide stability and safeguard one’s portfolio from potential risks. 

Investors prefer hybrid funds to generate higher returns carrying lesser risk potential than liquid funds. 

Diversification

Investing in hybrid funds is essentially an avenue for diversifying one’s profit generation. Investors can further opt for small-cap, mid-cap and large-cap stocks to balance the risks involved. 

Dynamic

Hybrid funds are not static as compared to other assets like fixed deposits. They allow investors and fund managers to deal with price changes instantaneously.

How are Best Hybrid Mutual Funds Taxed?

When hybrid funds invest at least 65% of the fund corpus in equity and equity-related instruments, they are taxed as equity funds. This means that short term capital gains (STCG) attract 15% tax every year while long term capital gains are subject to 10% tax annually. 

Note that individuals do not need to pay capital gains tax if their long term capital gains do not exceed Rs. 1 lakh. 

On the other hand, if hybrid funds allocate a minimum of 65% of the investment corpus to debt instruments, they are taxed like debt funds. Accordingly, short term capital gains are taxed according to the individual’s income tax slab rate. On the other hand, a flat tax rate of 20% is applicable on long term capital gains along with indexation benefits. 

Who Should Invest in Best Hybrid Mutual Funds?

Hybrid mutual funds are a suitable option for investors looking for a safer investment option than equity mutual funds. These schemes also suit investors who are seeking higher returns than debt funds. 

The equity components in a hybrid fund’s portfolio offer the opportunity to generate high returns. At the same time, the debt exposure safeguards the portfolio value from price fluctuations in the stock market. 

Risks Associated with Top Hybrid Mutual Funds

Hybrid mutual funds are more rewarding than many other asset types. However, there are a few drawbacks, which are:

Market risk

Volatility is a necessary shortcoming that makes investments both rewarding and risky. Like any other investment avenue, even the best hybrid mutual funds are subject to market fluctuations. Investors can lose if the market price falls drastically. 

Credit and interest rates fluctuations

Debt securities with lower credit ratings can lead to significant losses in the principal amount. Additionally, a sudden rise in interest rates can also adversely affect bond prices, the burden of which will be faced by investors. 

Lack of expertise and control

Inability to handle debt and equities simultaneously implies higher risks. If the fund managers do not necessarily resonate with the investor’s intention, hybrid mutual funds may prove to be a risky investment option.   

Also Read: Taxation In Mutual Funds: Mutual Fund Tax Calculation

Things to Consider Before Investing in Top Hybrid Funds 

Make sure to take the following aspects into consideration before allocating your savings to any of the best hybrid funds: 

Expense ratio

The expense ratio is an annual fee that every asset management company (AMC) imposes on investors of a mutual fund scheme to cover the expenses incurred for running the fund. Therefore, make sure to compare the expense ratio of different hybrid mutual fund schemes before opting for a scheme. 

Remember, the expense ratio is not the only parameter. There are other factors that you must consider.

Investment objective

This refers to the financial goals that you want to fulfil. It could be financing your child’s education or building a retirement corpus. Identify your investment goal and make sure that it is in line with the fund’s objective before investing. 

Risk appetite

The risk-bearing ability is not the same for all investors. While some may have a high-risk appetite, others may want to take minimum risk. Hence, it becomes essential for investors to assess their risk profile before investing in the best hybrid mutual funds.

Investors with high-risk bearing capacity may consider investing in a scheme that primarily invests in equity and equity-related instruments. On the other hand, risk-averse individuals may consider investing in the best hybrid funds that allocate the majority of their fund corpus to debt securities. 

Past returns

For individuals who are looking to invest in hybrid mutual funds, it is crucial to check a fund’s historical performance and compare it with that of other schemes of the same category. The past returns of a scheme indicate if the fund has been run well enough. 

That said, keep in mind that the historical performance of a fund does not give any indication in relation to its future performance.  

The fund manager’s track record

When choosing a hybrid mutual fund, it is vital for investors to consider the track record and experience of the fund manager. After all, they’re all actively involved in all buy-and-sell decisions. In other words, whether or not a scheme will be able to fulfil its predetermined objective depends upon the efficiency of a fund manager. 

Mode of investment 

Individuals have two options when it comes to the investment mode- lump sum and SIP. The first route allows investors to allocate a large sum of money to a mutual fund scheme all at once.  That said, if one chooses a SIP, he/she can invest a certain amount at regular intervals (monthly, quarterly, etc.). 

Final Word

Investing in the best hybrid mutual funds can be a prudent move for individuals who aim to maximise their portfolio returns. That said, make sure to compare the different schemes and choose the one which is best suited for your financial goals. 

FAQs on Best Hybrid Mutual Funds

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

This article has been prepared on the basis of internal data, publicly available information and other sources believed to be reliable. The information contained in this article is for general purposes only and not a complete disclosure of every material fact. It should not be construed as investment advice to any party. The article does not warrant the completeness or accuracy of the information and disclaims all liabilities, losses and damages arising out of the use of this information. Readers shall be fully liable/responsible for any decision taken on the basis of this article.