Stock Market News: Every market correction raises the same question for investors: should they stay invested or move to safer assets?
Equity has historically delivered better long-term returns, but sharp swings often test investors’ patience. Debt investments, on the other hand, offer stability but may not generate enough wealth over time. Hybrid ETFs aim to bridge that gap.
Recently allowed by the Securities and Exchange Board of India (SEBI), Hybrid Exchange Traded Funds (ETFs) combine equity and debt in a single passive investment product. Unlike actively managed hybrid mutual funds, these ETFs follow a transparent, rules-based index with a fixed asset allocation instead of relying on a fund manager’s market calls.
“Hybrid ETFs are designed to solve one of the biggest dilemmas investors face-choosing between growth and stability,” said Siddharth Srivastava, Head – ETF Products & Fund Manager, Mirae Asset Investment Managers (India).
He explained that while traditional hybrid mutual funds allow fund managers to change allocations, sectors and even debt quality within regulatory limits, Hybrid ETFs stick to a predefined index methodology.
“For instance, a balanced Hybrid ETF may maintain a 50:50 allocation between equity and debt. The portfolio is rebalanced periodically based on clear rules, giving investors complete visibility into the underlying securities and the investment process,” Srivastava said.
Unlike buying separate equity and debt ETFs, investors get both asset classes in a single product. Since the fund itself maintains the allocation, investors do not have to rebalance their portfolios manually.
Another advantage is liquidity. As exchange-traded products, Hybrid ETFs can be bought or sold during market hours at prevailing prices.
SEBI currently permits equity-oriented, debt-oriented and balanced Hybrid ETFs and index funds based on eligible equity and debt indices. To mirror these indices, the funds invest directly in the underlying securities according to the prescribed allocation.
Better Downside Protection
The biggest appeal of Hybrid ETFs lies in cushioning losses during volatile markets.
According to back-tested data shared by Mirae Asset, a 50:50 combination of the Nifty200 Momentum 30 Index and the Nifty 8-13 Year G-Sec Index would have fallen 17.6 per cent during the Covid-19 market crash between January 2011 and June 2026. In comparison, the Nifty 50 dropped 38.3 per cent over the same period.
The blended portfolio also recorded significantly lower volatility — 9.7 per cent compared with 16.4 per cent for the Nifty 50 — while delivering a compounded annual growth rate (CAGR) of 12.7 per cent. That was higher than the Nifty 50’s 10.5 per cent CAGR, although lower than the 17.2 per cent generated by the Nifty200 Momentum 30 Index.
“The objective isn’t to maximise returns at any cost,” Srivastava said. “Hybrid ETFs may give up a part of the equity upside in exchange for better downside protection. Smaller drawdowns are generally easier to recover from, both financially and emotionally.”
He added that different combinations of equity and debt indices could produce different outcomes depending on market conditions, giving investors more options as the category evolves.
Tax Efficiency Could Add To Returns
Hybrid ETFs may also offer a tax advantage over investors managing separate equity and debt ETFs on their own. Since rebalancing happens within the fund, investors are not required to sell one asset and buy another every time allocations change. That means capital gains taxes are generally deferred until the units are redeemed, subject to prevailing tax rules.
Srivastava said this deferral can improve long-term compounding compared with self-managed portfolios that trigger taxable gains during periodic rebalancing.
He also noted that balanced Hybrid ETFs, where debt exposure remains below 65 per cent, currently qualify for long-term capital gains taxation after a holding period of more than one year.
Who Should Consider Hybrid ETFs?
Hybrid ETFs are aimed at investors who want a disciplined investment approach without worrying about market timing. “They can serve as an ideal core portfolio holding for first-time investors or anyone who struggles to remain invested in pure equity funds during volatile periods,” Srivastava said.
However, he stressed that no investment product is suitable for everyone. “Investment decisions should always be based on an individual’s risk appetite, financial goals and investment horizon. Investors should consult their financial advisor before investing,” he said.
For investors looking to balance growth with stability, Hybrid ETFs could become a useful addition to the investment toolkit –especially when markets refuse to move in a straight line.