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Best Hybrid funds 2022: Minimize the market volatility risk for better returns

Learn all about Hybrid funds that help you minimize risk using the strategy of Portfolio Diversification.
Best Hybrid funds 2022: Minimize the market volatility risk for better returns

Portfolio diversification is one of the ways to minimize risk and achieve the returns you expect from your investments in mutual funds. And Hybrid funds can help you do that. With this article, we will explore all things about hybrid funds and see how good they are for you to invest in.

What are hybrid funds? 

Hybrid funds are one-of-a-kind mutual funds that invest in multiple asset classes. It is basically a mix of assets such as stocks, bonds, or in some cases, gold. Such diversification in asset classes helps minimize risks and offers exposure to different asset classes, which otherwise wouldn't have been possible for many investors. With hybrid funds, investors can easily afford to invest in various high-risk high return classes knowing that if one asset fails to perform, the other assets, such as bonds, will counter the volatility in the market. 

Best Hybrid Funds in 2022 in India

Some of the well-known hybrid plans in India and their returns are mentioned below:

Scheme Name
Direct plan - Growth option
AUM(Rs. crores)1 year(Absolute return)3 years(CAGR)5 years(CAGR)
Edelweiss Balanced Advantage Fund7,842.76.64%14.35%12.01%
Mirae Asset Hybrid - Equity Fund 6,657.776.60%13.18%12.60%
SBI Equity Hybrid Fund50,866.548.15%12.85%12.60%
DSP Equity & Bond Fund7,466.092.36%12.72%10.60%
HDFC Balanced Advantage Fund1,896.4413.78%12.43%11.04%
ICICI Pru Balanced Advantage Fund39,478.678.52%11.61%10.76%

Types of hybrid funds in the investment market

Hybrid funds are of the following types:

  • Aggressive hybrid funds: Invest 60-80% of their total assets in equity and related instruments. The remaining percent is reserved for debt and money-related instruments. 
  • Conservative hybrid funds: Invest 70-90% in debt and related instruments. The remaining 10% to 20% get invested in equity and related instruments. 
  • Balanced funds: It maintains 40% and 60% between equity and debt funds.
  • Dynamic asset allocation funds: It's a balance advantage fund, where equity and debt components are assigned dynamically.
  • Arbitrage funds: They work by profiting from the difference in price by simultaneously buying and selling assets. It's usually two market cash futures. These funds have at least 65% of equity exposure, and the rest is reserved for debt and money market instruments and decided on a tactical basis.

Who should invest in hybrid funds? 

Hybrid funds lie somewhere between debt and equity funds as they are neither too risky nor too safe. They offer better returns on moderate risk levels. These funds are good options for new investors who are unaware of the market workings as these provide stability to them while offering an opportunity to test equity market volatility. Hybrid funds are the most acceptable form of funds for investors who fear market corrections as these funds instil a sense of stability in them while enabling them to achieve a risk-return outcome.

Taxation of Hybrid funds 

Since hybrid funds are a combination of equity and debt funds, they are taxed separately for both fund components. The equity component in hybrid funds is taxed just like equity funds. Long-term capital gains of over Rs 10 lakh are taxed at 10%, whereas short-term capital gains get taxed at 15%.

The debt components get taxed like debt funds. From the holding periods of less than three years, the capital gains are considered short-term gains and taxed as per the investor's income tax slab rate. The long-term capital gains from the holding period of more than three years will get taxed at 20% with indexation benefits and 10% without indexation. 

Risks involved in hybrid funds 

Hybrid funds involve both equity and debt components, so there is a considerable risk involved, although not more than solely in equity funds. These funds associate two types of risks related to fluctuation in interest rates and stock prices. The NAV of funds drops with the fall in stock prices, and similar things happen when the interest rate increases. The risk involved in hybrid funds varies from aggressive to moderate and conservative depending on the allocation of assets, making them suitable for both experienced and new investors. Investors can choose the funds based on their risk profile and investment horizon. 

Return potential of hybrid funds

Hybrid mutual fund schemes diversify the investment to multiple asset classes and help investors achieve maximum returns at minimum possible risk. However, the returns on a hybrid fund majorly rely on its underlying securities’ performance. For instance, the returns from aggressive hybrid funds will depend on equity market fluctuations. The returns from hybrid funds are more enhanced when considered for a 3-5 year time horizon as the longer you stay invested, the better the chances of earning superior returns.

Advantages of hybrid funds

Investing in hybrid funds means getting more benefits at a lower risk. Here are some reasons investors should invest in hybrid funds and what makes them so attractive.

  • Diversification in asset class: Hybrid funds offer diversification benefits by investing in various asset classes. These funds help lower the risk as the performance of one asset class is balanced by the performance of another, and the returns remain stable. 
  • Offers convenience in investment: Since the hybrid funds invest in multiple asset classes in line with the investment objective and type of fund, it gives investors equal exposure to equity, debt, gold-related instruments such as the ETF, and many other asset classes. Doing so prevents investors from the hassles and additional cost of investing in each asset class separately. 
  • Benefits of various asset classes: As these funds invest in multiple asset classes, each one of these contributes its advantage to the portfolio. By investing in equity, these funds help generate long-term capital gains. The debt component in funds offers stability and lower volatility, whereas gold and cash provide high liquidity. 

Why should you invest in hybrid funds? 

Hybrid funds are safer than equity and provide higher returns than debt funds. These funds bring the best of both funds. The exposure to the volatile market through equity and the defensive mechanism of debt funds against extreme market fluctuations makes the hybrid funds an ideal investment instrument for earning stable and better returns.


Hybrid funds have emerged as the safest means of investment because of their ability to diversify the risk, especially for those with low-risk profiles and first-time investors. Its nature allows investors to diversify their portfolios across many asset classes and avoid concentration in one asset class or industry to get decent returns with minimal risk. However, before investing in a hybrid fund, investors must check the expense ratio as the fees get automatically deducted from your account from time to time. Evaluate if the fund manager has a proven track record & experience to drive good returns. Being well versed in the pros and cons of investing is essential for ensuring better returns on investment while helping you minimize risk and losses.


Do you have any queries related to hybrid funds? Check out this FAQ section.

  1. Are hybrid funds safe?
    • Ans: Yes, hybrid funds are safer than equity funds. They provide better returns than debt funds and are best for conservative and budding investors who want to get exposure to various asset classes without exposing themselves to risk and investing costs.
  2. How do hybrid funds work? 
    • Ans: Hybrid funds invest in various asset classes based on the scheme's investment objective. It consists of a good mix of equity, debt, gold & related instruments, cash, and other asset classes. The concentration of assets in a portfolio is done based on the investment objective and market conditions, so better and risk-adjusted returns can be achieved.
  3. How to choose hybrid funds?
    • Ans: Before selecting any hybrid funds, investors must, 
      1. Check the risk involved in these funds as it's directly proportional to how the asset allocation is done in the portfolio. Look at the fund's composition, such as the stocks it invests in, whether the company is large-cap, mid-cap, small-cap companies, etc.
      2. Analyze your own financial goals as per your investment horizon and risk appetite. Check if they are in line with the hybrid fund objective. To get a better idea of this, you can seek advice from professional financial advisors from Glide Invest.

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