Last Updated on Mar 29, 2022 by Sankeeth Sunny

Hybrid funds are a class of unique mutual funds that invest in both debt and equity. The portfolio of a hybrid fund would consist of equity, debt, bonds, money market instruments, anf the like. This kind of fund is an excellent option for investors who want to enter the equity markets but are risk-averse.

This article covers:

Features of hybrid funds

  1. Hybrid funds invest in a combination of debt and equity instruments. 
  2. These funds are known for better risk management.
  3. The funds offer diversification at the discretion of the investor.
  4. Hybrid funds can be debt or equity-based.
  5. A fund manager will manage your investments, percentage of exposure, buying, and selling.
  6. There are largely seven different types of hybrid funds.
  7. Equity-oriented hybrid funds, held for more than a year, will attract a 10% LTCG tax. If the fund is held for less than a year, 15% STCG tax will be applicable.
  8. Debt-oriented funds held for more than 3 yrs attract a 20% tax rate after accounting for indexation. If held for less than 36 mth, gains are taxed as per the income slab. 

Why invest in hybrid funds?

Hybrid funds are an excellent option for investors who want the best of both worlds – equity and debt. While equities are known for their return potential, the risk is also considerably high for this asset class. The reverse holds true for debt instruments. 

Hybrid funds can help investors avoid the risk of portfolio concentration of any one asset class and can help achieve a well-balanced portfolio – with equities that can provide capital appreciation and debt that can effectively mitigate risk.

These funds can be customized individually, depending on the investor’s risk tolerance, profile, and goals. Also, in the case of market turndowns, you are better off with investments across asset classes, where losses from one investment can be offset against the others. In that sense, hybrid funds provide a calculated blend of risk and return and are best suited for investors that wish to have returns like those from equities but are risk-averse.

List of top hybrid funds 

Note: Data discussed is as of 10 March 2022.

  1. Quant Multi-Asset Fund

Launched by Quant Mutual Fund, Quant Multi-Asset Fund is a hybrid mutual fund scheme. As of 10 March 2022, this fund sits on an AUM of ~Rs 200 cr. The 3-yr rolling return of this fund was recorded at 30.69%.

The fund’s equity is invested in the financial, construction, consumer staples, and communication sectors. Nippon India ETF Gold BeES, ITC Ltd, Just Dial Ltd, IRB Infrastructure Developers Ltd., and Himachal Futuristic Communications Ltd are the fund’s top holdings.

  1. Quant Absolute Fund

Launched by Quant Mutual Fund, Quant Absolute Fund is an aggressive hybrid mutual fund scheme. This fund has an AUM of ~Rs 200 cr. as of 10 March 2022. The 3 yr-rolling return of the Quant Absolute Fund stood at 30.31%.

The majority investment of this fund is in construction, consumer staples, metals, and mining industries. GOI, Vedanta Ltd., ITC Ltd., ICICI Bank Ltd., Adani Ports, and Special Economic Zone Ltd are the fund’s top five holdings.

  1. BOI AXA Mid and Small Cap Equity and Debt Fund

Launched on 20 July 2016 by BOI AXA Mutual Fund House, BOI AXA Mid and Small Cap Equity and Debt Fund is an open-ended aggressive hybrid scheme. This fund has been benchmarked against the Nifty Mid Small Cap 400 Total Return Index.

The asset allocation of this fund is ~ 77% in equity, ~6% in debt, and the remaining in cash and cash equivalents. Chemicals, metals and mining, materials, automobiles, and technology make up most of the fund’s equity holdings. Jindal Stainless Ltd., APL Apollo Tubes Ltd., Minda Industries Ltd., KPR Mills Ltd., and Astral Poly Technik Ltd. are the fund’s top five holdings.

  1. Baroda Dynamic Equity Fund

Launched by Baroda BNP Paribus Mutual Fund, this fund sits on an AUM of ~Rs 1,903 as of 10 March 2022. Its 3-yr average rolling return stood at 21% roughly. GOI, Reliance Industries Ltd., Infosys Ltd, ICICI Bank Ltd, and Sun Pharmaceutical Inds. Ltd are the fund’s top five holdings.

  1. Kotak Equity Hybrid Fund

Launched on 11 Nov 2014 by Kotak Mahindra Mutual Funds, Kotak Equity Hybrid Fund is an aggressive hybrid mutual fund scheme. As of 10 March 2022, the fund had a mammoth ~ Rs 2,370 cr in AUM. The 3-yr average rolling returns stood at 20.38%.

Finance, technology, materials, energy, and capital goods sectors make up the majority of the fund’s stock holding. GOI, ICICI Bank Ltd, Infosys Ltd, HDFC Bank Ltd, and State Bank of India are the fund’s top five holdings.

  1. BNP Paribas Substantial Equity Hybrid Fund

Again launched by Baroda BNP Paribus Mutual Fund, this fund sits on an AUM of Rs 742 as of 10 March 2022. Its 3-yr average rolling returns were recorded at 20% roughly. 

  1. ICICI Pru Equity and Debt Fund

Launched under ICICI Prudential Mutual Fund, ICICI Prudential Equity and Debt Fund is an aggressive hybrid mutual fund scheme. The fund has a mammoth AUM of ~Rs 18,714 cr. Its 3-yr average rolling returns stood at ~19%. The minimum SIP investment for this scheme is Rs 100.

Financial, energy, communication, automobile, and technology sectors make up most of the fund’s equity holdings. Bharti Airtel Ltd, ICICI Bank Ltd, National Thermal Power Corp. Ltd, Oil and Natural Gas Corpn. Ltd, and Hindalco Industries Ltd are the fund’s top five holdings. 

  1. Axis Equity Hybrid Fund

Launched by Axis Mutual Fund on 9 August 2018, Axis Equity Hybrid Fund is an aggressive hybrid mutual fund. This popular fund sits on an impressive AUM of Rs 1,833 cr, with 3-yr average rolling returns at ~20%. This fund is benchmarked against CRISIL Hybrid 35+65 Aggressive Index. 

The fund invests in a variety of market capitalizations, with roughly 82.31% in large-cap, ~14.11%in mid-cap, and 3.58% in small-cap companies. The minimum SIP investment for this scheme is Rs 1,000.

  1. HSBC Equity Hybrid Fund

Launched by HSBC Mutual Funds on 22 October 2018, HSBC Equity Hybrid Fund is an open-ended aggressive hybrid mutual fund scheme. This scheme is benchmarked against CRISIL Hybrid 35+65 Aggressive Index. The fund has nearly Rs 496 cr. as AUM as of 10th March 2022. The 3-yr average rolling returns stood at 19.3%. 

Major equity holdings are in finance, technology, automobile, construction, and healthcare industries. GOI, ICICI Bank Ltd, HDFC Bank Ltd, Infosys Ltd, and Axis Bank Ltd are the fund’s top five holdings.

  1. Motilal Oswal Equity Hybrid Fund

This fund was started by Motilal Oswal Mutual Fund on 24 September 2018. It sits on an AUM of ~Rs 391 cr, with average 3-yr rolling returns recorded at ~19%. 

The fund has a 72.05% equity allocation and a 25.10 % debt exposure. Financials, services, technology, automobile, and capital goods sectors make up the majority of the fund’s stock holdings. Rajasthan Government, Bajaj Auto Ltd, ICICI Bank Ltd, HDFC Bank Ltd, and Container Corpn. Of India Ltd are the fund’s top five holdings.

Conclusion

Hybrid funds are those that invest in both – debt and equity. For investors looking for high returns and stable risk management, hybrid funds make an excellent option. The percentage of exposure is in mind with the investor’s risk appetite and investment goals. These funds bring the best of both worlds to the investors and can help in long-term wealth creation.

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Aradhana Gotur

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