Hybrid mutual funds are increasingly drawing investor attention for their promise of combining market-linked returns with a measure of downside protection through diversified asset allocation.
Financial advisers say the appeal of these funds lies in the way they spread investments across equity, debt and, in some cases, other asset classes such as commodities, helping investors manage volatility while remaining invested in growth-oriented assets.
Kirtan Shah, Founder and Chief Executive Officer of Truvanta Wealth, said the key differences among hybrid fund categories stem from how fund managers allocate money across asset classes within regulatory limits.
“The major difference between each of these categories is their allocation to equity, debt or something outside of both,” Shah said.
According to him, understanding the proportion invested in equity versus debt or alternatives such as precious metals helps investors clearly distinguish between hybrid fund categories.
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Explaining the structure of hybrid funds, Shah said conservative hybrid funds typically allocate about 10–25% of their portfolio to equity, with the remainder invested in debt instruments. Balanced hybrid funds increase equity exposure to around 40–60% and do not rely on arbitrage strategies, while aggressive hybrid funds further raise equity allocation to roughly 65–80%.
He added that balanced advantage or dynamic asset allocation funds differ from fixed-allocation hybrids, as they allow fund managers to actively shift between equity and debt depending on market valuations and conditions.
Multi-asset allocation funds have also gained prominence, as they invest across at least three asset classes, including precious metals. “You need to have a minimum 10% in three asset classes,” Shah said, noting that the remaining allocation is left to the discretion of the fund manager. Equity savings funds, meanwhile, maintain a minimum equity exposure of 65%, though this can include arbitrage positions designed to lower overall risk.
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Nisreen Mamaji, Certified Financial Planner and Founder of MoneyWorks Financial Services, said hybrid funds are designed to cushion portfolios during market corrections. She noted that during periods such as 2020, hybrid funds declined less than pure equity funds because of their lower equity exposure.
Over longer investment horizons, Mamaji said aggressive hybrid funds have, at times, delivered returns comparable to large-cap equity funds, while exhibiting lower volatility. “The idea is to protect the downside and still participate in returns,” she said.
She added that dynamically managed categories, such as balanced advantage funds, actively adjust allocations in response to market valuations. “The principle is buy low and sell high,”
Mamaji said, explaining that such funds aim to rebalance portfolios more frequently as conditions change.
For the full interview, watch the accompanying video
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