 "Hybrid funds: Low risk, high returns; experts explain who should invest")
The Indian stock market continues to experience volatility in January, similar to last year. Despite this, mutual funds witnessed inflows for the 46th consecutive month in December, reflecting investors' continued trust in mutual funds. For investors seeking higher returns with lower risk amid market fluctuations, hybrid funds can be an ideal option. Experts also share the same opinion. Through hybrid mutual funds, investors can benefit from potential market growth while reducing risk by investing in debt securities.
Who should invest in hybrid funds?
According to Harshad Borawake, Head of Research and Fund Manager (Equity) at Mirae Asset Investment Managers (India), equities deliver good returns in the long term but can experience volatility in the short and mid-term. Investors unable to handle this risk might face losses. Hybrid funds help address this problem.
Hybrid funds invest in a mix of equity and non-equity asset classes, reducing risk while delivering better returns. Investors looking for lower volatility than equities but higher returns than fixed income can consider hybrid funds for the medium to long term. Additionally, investors who lack professional expertise, want to avoid the hassle of monitoring and adjusting asset allocation periodically, and seek tax-efficient returns can also explore hybrid funds as a viable option.
Hybrid funds: Choosing based on risk appetite
Hybrid funds combine equity and debt investments to meet investment goals. Each hybrid fund has a different equity-debt ratio to cater to various investor needs. Based on the equity exposure, hybrid mutual funds are categorized into seven types.
Conservative Hybrid Funds: When equity allocation is between 10% and 25%.
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Balanced Hybrid Funds: When equity allocation ranges from 40% to 60%.
Aggressive Hybrid Funds: When equity allocation is the highest, between 65% and 80%.
Another interesting category is Dynamic Asset Allocation, where the equity-debt ratio is managed dynamically between 0% and 100%.
Additionally, there are Equity Savings Funds, which allocate at least 65% to equity and related instruments, 10% to debt instruments, and a small portion to derivatives.
How to choose the right hybrid fund?
Borawake says that investors can choose different hybrid funds based on their risk tolerance, such as Equity Savings Fund, Balanced Advantage Fund, Dynamic Asset Allocation Fund, Aggressive Hybrid Fund, and Multi Asset Allocation Fund. Each fund has a different risk-return profile, making them suitable for different types of investors
Smart way to invest in Hybrid funds?
Mayank Mishra, Vice President (Product Management) at INDmoney Mutual Fund, explains that investing in hybrid funds is a smart way to handle market volatility. These funds maintain a balance between equity and debt, making them an excellent option for investors seeking lower risk than equity funds and better returns than debt funds.
The equity portion of hybrid funds capitalises on market growth, while the debt portion reduces risk during downturns. This combination of growth and security makes hybrid funds a versatile tool for most portfolios. However, whether to choose an aggressive or balanced hybrid fund should depend on your risk appetite.
Top 5 hybrid funds: Delivered 19-23% returns in 3 years
In terms of performance, the top 5 hybrid funds have delivered impressive average returns of 19-23% over the past three years. Among these, SBI Magnum Children’s Benefit Investment Scheme offered the highest return of 23.73%. If someone invested Rs 100,000 in this scheme three years ago, the investment would now be worth approximately Rs 189,000, yielding a profit of Rs 89,420.
Here’s a mutual fund calculation to understand the value of a Rs 100,000 lump sum investment made three years ago in these top 5 hybrid funds:
| Hybrid funds | 3 year Return | Total Value (in thousands) | |
| 1 | SBI Magnum Children’s Benefit Fund – Investment Plan – Direct Plan | 23.73% | 189,420 |
| 2 | JM Aggressive Hybrid Fund – Direct Plan | 22.66% | 184,548 |
| 3 | HDFC Balanced Advantage Fund – Direct Plan | 21.70% | 180,249 |
| 4 | Quant Multi Asset Fund – Direct Plan | 21.08% | 177,508 |
| 5 | ICICI Prudential Multi Asset Fund – Direct Plan | 19.40% | 170,221 |
Source: Value Research (7 January 2025)
Note: The past performance of mutual fund schemes does not guarantee future returns.
Smart tips for investing in hybrid funds
Hybrid funds are a mix of growth and security, offering an excellent solution for most portfolios. The choice of a hybrid fund—whether aggressive or balanced—should align with your risk-taking ability. Hybrid funds are especially beneficial for those seeking stable returns amid market volatility.
(Disclaimer: The performance details of the funds are provided here. Investments in mutual funds are subject to market risks. This is not investment advice. Please consult your advisor before investing.)