Balanced and Hybrid Funds: Get meaning, Difference and List of funds

Balanced and Hybrid Funds: Get meaning, Difference and List of funds

What are Balanced and Hybrid Funds?

Balanced and hybrid mutual funds invest in both, equity and debt, to create a balanced portfolio. When you invest in hybrid and balanced funds, you get dual benefit of: 
  • Growth from the equity portion & 
  • Capital protection from the debt portion. 
Hybrid and balanced mutual funds are the best investment option for beginners and conservative investors with a moderate risk appetite. 

Today we will learn: 

  • What are hybrid mutual funds?
  • What is the difference between balanced and hybrid mutual funds? 
  • What are the types of hybrid mutual funds? 
  • How are hybrid funds taxed? 
  • Which is the best type of hybrid funds in India? 
  • Which are the 5 best hybrid funds in India for 2021?

1. What are Hybrid mutual funds?

Hybrid mutual funds are a type of open ended mutual fund which invests in both equity and debt. Hybrid mutual funds are ideal for conservative investors looking for moderate returns. The NAVs of hybrid and balanced funds are comparatively less volatile to pure equity funds. 

2.  What is the difference between balanced and hybrid mutual funds? 

Prior to 2017, there was no clear difference between balanced and hybrid funds. But post SEBI re-categorisation, balanced and hybrid funds were separated with distinct investment mandates and mutual funds are allowed to offer either an Aggressive Hybrid fund or Balanced fund, not both. 

3.  What are the types of hybrid mutual fund schemes? 

There are 6 types of hybrid mutual fund schemes in India, each with a distinct investment mandate. 
Type of Hybrid Fund Equity Allocation Debt Allocation
Conservative Hybrid Fund 10% - 25% 90% - 25%
Balanced Hybrid Fund 40% - 60% 60% - 40%
Aggressive Hybrid Fund 65% - 80% 35% - 20%
Dynamic Asset Allocation / Balanced Advantage Fund Invests Dynamically Invests Dynamically
Multi-Asset Allocation Fund The scheme will invest in at least   three   asset classes  with  a  minimum  allocation of  at least  10%  each  in  all  three asset classes The scheme will invest in at least   three   asset classes  with  a  minimum  allocation of  at least  10%  each  in  all  three asset classes
Arbitrage Fund The scheme will follow an arbitrage strategy and maintain a minimum 65% in Equity.  The scheme will follow an arbitrage strategy and maintain a minimum 65% in Equity. 
Equity Savings Minimum 65%  Minimum 10% 

4.  How are hybrid funds taxed? 

Hybrid mutual funds are taxed as below: 

Tax on equity-oriented hybrid funds: 

  • If redeemed within 12 months a 15% short term capital gains tax is applicable
  • If redeemed after 12 months, a 10% long term capital gains tax above Rs 1 lakh is applicable. 

Tax on debt-oriented hybrid funds: 

  • If redeemed within 36 months, the gains will be added to your tax slab and taxed accordingly. 
  • If redeemed after 36 months, taxed at 20% with indexation. 

5.  Which is the best type of hybrid funds in India? 

Type of Hybrid Fund Equity Allocation Debt Allocation Suitable for 
Conservative Hybrid Fund 10% - 25% 90% - 25% Conservative Low-risk investors
Balanced Hybrid Fund 40% - 60% 60% - 40% Moderately Conservative Investor
Aggressive Hybrid Fund 65% - 80% 35% - 20% Aggressive Investor 
Dynamic Asset Allocation / Balanced Advantage Fund Invests Dynamically Invests Dynamically Moderately Aggressive Investor
Multi-Asset Allocation Fund The scheme will invest in at least   three   asset classes  with  a  minimum  allocation of  at least  10%  each  in  all  three asset classes The scheme will invest in at least   three   asset classes  with  a  minimum  allocation of  at least  10%  each  in  all  three asset classes Moderately Aggressive Investor
Arbitrage Fund The scheme will follow an arbitrage strategy and maintain a minimum 65% in Equity.  The scheme will follow an arbitrage strategy and maintain a minimum 65% in Equity.  Aggressive Investor 
Equity Savings Minimum 65%  Minimum 10%  Moderately Aggressive Investor

6.  Which are the 5 best hybrid funds in India for 2021?

Best Hybrid Mutual Funds in India Assets Under Management Risk Profile
 EDELWEISS BALANCED ADVANTAGE FUND - GROWTH OPTION 1923.53 Cr Medium - High
 CANARA ROBECO EQUITY HYBRID FUND REGULAR GROWTH 3906.04 Cr Medium - High
 MOTILAL OSWAL EQUITY HYBRID FUND-REGULAR PLAN GROWTH 375.16 Cr Medium - High
 UNION BALANCED ADVANTAGE FUND REGULAR PLAN - GROWTH 554.84 Cr Medium - High
 TATA BALANCED ADVANTAGE FUND REGULAR PLAN GROWTH 1263.93 Cr Medium - High
** The above ranking is as on 16th December 2020. To check the latest data and ranking of all mutual funds click here. 

Final Thoughts: 

Balanced and hybrid funds are a great investment option for beginners, conservative low-risk investors and retirees as it gives them the best of both the worlds.  However, hybrid funds are not risk-free. For example, aggressive hybrid funds invest 65%-80% in equity and carry very high risks. Whereas conservative hybrid funds invest upto 90% in debt and are low risk.  You might be a conservative investor investing in an aggressive hybrid fund! Therefore selecting between the various types of hybrid funds is very important.  To avoid such a situation, Samco’s mutual fund investing platform, RankMF has created a unique SmartSwitch facility which helps you switch out of poor performing funds and switch in to top performing mutual funds.  To access this SmartSwitch facility, open a Samco Demat and trading account and get FREE access to RankMF’s SmartSwitch facility.  So, invest in the best hybrid funds in India for 2021 using the best mutual fund research and investing platform in India - RankMF. 
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About The Author

The author is a Certified Financial Planner (CFP) with 5 years experience in Investment Advisory and Financial Planning. Her strength lies in simplifying complex financial concepts with real life stories and analogies. Her goal is to make common retail investors financially smart and independent.

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