Top Performing Hybrid Mutual Funds in 2022

Hybrid mutual funds are types of mutual funds that invest in more than one asset class. They aim to offer diversification of portfolio, along with long-term wealth accumulation. 

Hybrid mutual funds allow you to invest in both equity and debt instruments, thus offering the best of both asset classes. A blend of the two enables hybrid funds to offer higher returns than a debt fund while not being as risky as equity funds. 

Also Read: Hybrid Mutual Funds: Meaning, Types, Benefits, Returns & Taxation

List of Top Performing Hybrid Mutual Funds 

Following is a list of the best hybrid mutual funds in India: 

The funds in this table have been listed as per their 3-year annualised returns in descending order.

*The values are valid as of September 8, 2022. 

How Do Hybrid Mutual Funds Work? 

Hybrid mutual funds invest in multiple types of securities that have different risk elements. Primarily, they invest in two asset classes – debt and equity. Debt instruments generally provide a regular and stable income while carrying lower risk. In comparison, equity securities are high-risk instruments that have the potential to generate more income than debt investments.

The best hybrid funds invest in a mixture of these instruments in varying proportions to ensure diversification and even out risks. The profitability of hybrid mutual funds depends on asset allocation strategies, and market movement. 

There are various types of hybrid mutual funds that choose a mix of equity and debt assets based on the investment strategy of the fund manager. As an investor, you must assess whether the fund manager’s investment objective aligns with your individual goals before going ahead with any investment. 

Also Read: Arbitrage Funds- Meanings, Basics, Things to Consider & More

Different Types of Hybrid Mutual Funds

There are various types of hybrid funds depending on the asset allocation and investor’s risk appetite. Here we are mentioning the most common type of hybrid mutual funds: 

Aggressive hybrid funds allocate 65-80% of their corpus to equity instruments and the rest to money market and debt instruments. This allocation leads to a possibility of high returns at reduced risk. 

Conservative hybrid funds invest 75% to 90% in fixed income instruments like certificates of deposit, commercial papers, and corporate bonds. Some portion is also invested in cash and cash equivalents to maintain liquidity. 

Balanced hybrid funds invest a maximum of 40%-60% in equity and equity-related instruments and 40%-60% in debt instruments. Arbitrage is not permitted in this category of MFs.

Dynamic asset allocation funds can shift between 100 percent debt to 100 percent equity asset class. The asset allocation is decided on the basis of recommendation of the financial model deployed by the fund. 

Multi-asset allocation funds allocate at least 10% of their portfolio to three different asset types which usually would include debt and equity securities, real estate, gold etc. This mutual fund scheme is more diversified than other hybrid funds as the investment is spread out to multiple asset classes.

Arbitrage funds follow the arbitrage strategy of generating returns by utilising price differences of the same securities in different markets. To illustrate, the funds will buy securities from one market at a lower price and sell it in another market offering a higher price.

Equity Savings funds invest in all three sectors – equity, debts, and derivatives sector. These funds have the potential to generate income from derivatives trading. Equity savings schemes invest a minimum of 65% in equities and 10% in debt securities. 

Read More: Top 10 Multi Asset Allocation Funds to Consider in 2022

Advantages of Investing in Hybrid Mutual Funds

Hybrid mutual funds invest in multiple asset classes to help investors diversify their portfolios significantly. Further, they diversify the portfolio even across sub-classes within a particular asset class. For example, within the overall Equity allocation, they invest in large cap, mid cap, or small cap stocks.

Unlike equity and debt funds that operate on the opposite ends of the risk spectrum, these funds can offer varying levels of risk tolerance. You can invest in equity-oriented schemes if you have high risk-capacity and in debt-oriented schemes if you are risk-averse. There is also the option of Dynamic Asset Allocation Fund if you don’t want to stick to a fixed Asset allocation.

Additionally, if you wish to opt for a fund that has the potential to generate higher returns than pure debt mutual funds, you can consider investing in hybrid funds. Hybrid funds can provide security against fluctuating share prices and can withstand market volatility. 

Things to Consider Before Investing in Hybrid Mutual Funds

Despite the benefits of choosing the best hybrid funds in India, some problems can reduce an investor’s profit-generating capacity. They are as follows:

• Risk Factor: Fluctuations in stock prices and interest rates are the two main risk factors associated with hybrid funds. The Net Asset Value (NAV) of a Mutual Fund drops proportionately in response to a fall in stock prices. Additionally, abrupt changes in interest rates can affect asset value, making it a risky endeavour for investors. 
• Asset Allocation: You must assess the asset allocation strategy of a fund manager before going ahead with any investment. The types of asset classes the funds are invested in should be aligned with your investment objectives. 
• Past Returns of the Fund: Investors are advised to analyse the past annualised returns of a hybrid mutual fund before going ahead with an investment. While these returns are not a guarantee of future performance, they help you to gauge the potential of  a fund.  

Read More: Aggressive Hybrid Mutual Funds: Top Performing Aggressive Hybrid Fund in India

Taxation on Hybrid Funds

For taxation, hybrid mutual funds are treated as equity funds or debt funds based on their asset allocation. All hybrid funds with an exposure of 65% or more to equities are treated as equity funds. And the rest are treated as debt funds.

The rate of taxation on equity and debt funds as per their holding period has been discussed below:

Also Read: A Beginner’s Guide to Equity Investment

Final Word 

Like any other mutual fund, the performance of hybrid mutual funds is based on market volatility and price changes of underlying assets. However, fund managers of hybrid mutual funds have the liberty to change the asset allocation of hybrid funds as per market conditions. Make sure to assess your risk tolerance level and return strategy before investing in the best hybrid mutual funds. 

Frequently Asked Questions