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All You Need to Know About Hybrid Mutual Funds

There are multiple ways for you to achieve diversity in your portfolio. But if you are not a full-time investor who has enough time to monitor your investments regularly, a mutual fund becomes an optimal choice. Of which a hybrid mutual fund could offer the best diversification. Read on to find out all you need to know about hybrid mutual funds.

What are hybrid funds?

Hybrid funds allow you to invest in multiple asset classes through a single fund. Asset classes contained in hybrid funds include –

Equities – Shares of companies in different sectors.

Debts – Fixed-income securities like government bonds, corporate bonds, municipal bonds, treasury bills, commercial paper etc.

Cash or cash equivalents – These are the investments that go towards money instruments like currency.

Real estate – Hybrid funds invest in real estate through REITs

Forex – This includes investments in foreign derivatives.

Most hybrid funds will have at least two asset classes present in their portfolio. This ensures that there is enough diversification. These asset classes also complement each other in case of risk and return to strike a good balance. For instance, equities are known for their higher growth potential, but they also have a higher risk. On the other hand, a debt instrument has minimal risk associated with investing in them but has lesser growth potential than stocks. This helps a hybrid fund with both asset classes have a reasonable risk and return balance.

Benefits of hybrid funds

Investing in hybrid funds has benefits that make it an excellent option. Let’s see what they are –

Risk and return balance

One of the hardest things to achieve in a portfolio is balancing risk and return. Ideally, your portfolio should have securities that help appreciate the capital and, at the same time, preserve your investment. Hybrid funds aim to strike that balance. While securities like equities allow your money to grow, debt instruments make sure there is enough preservation.


Since hybrid funds have a well-balanced portfolio managed by experts, it is easier for beginners to invest in them. While it may take a while for them to figure out their investment horizon, there is minimal risk with choosing a hybrid fund till then. As said above, they can keep the investments safe as well as appreciate the capital. Therefore, your investment will likely stay safe until you figure out your investment taste.

Lower volatility

As discussed above, a hybrid fund’s main character is its diversified portfolio. Such a portfolio ensures low volatility. It is because even if one security is bearish, the others can keep your investment stable.

Systematic investment plans

Like regular mutual funds, you can also invest in hybrid funds through SIP. This means you don’t have to have a lump sum to start your investment. Instead, you can put aside a minimal amount every month towards your investment to slowly and steadily build your corpus. In the long term, coupled with the power of compounding, SIPs tend to be highly beneficial.

Are hybrid funds risk-free?

There is a common conception that hybrid funds are entirely risk-free. But that might not be the case always. Hybrid funds can face two types of risk – fluctuations in stock markets and interest rates. But investing according to your risk appetite always helps.

Hybrid funds are a feature-rich and good way to diversify your portfolio. It is one single fund that can help you take advantage of the growth of multiple asset classes. Talk to your investment advisor and invest in one today!

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