Hybrid Funds – Gives Benefits of Capital Appreciation & Income Generation at Best

hybrid fund

Craving for an investment vehicle that can grow your money with time? Looking to generate a steady flow of income? If these are your goals, then there is none better than hybrid funds to invest into. These are a class of mutual funds which invest in both equity and debt instruments to serve the purpose. While equity offers the potential to lift the growth of the capital invested over time, debt instruments ensure a regular flow of income and the safety of the capital.

It is due to this balancing act, hybrid funds have been the choice of investors for long. So, let’s open some chapters of hybrid funds by elaborating on their types and the top-performing funds of the category.

Types of Hybrid Funds

Hybrid Funds can be either equity or debt-oriented. Depending on their inclination, the asset allocation can vary. These funds can be classified into the following types –

  • Arbitrage Funds
  • Monthly Income Plans (MIPs)

Arbitrage Funds

These funds aim to benefit the investors from the mispricing of stocks between the derivatives and futures market. The fund managers, which are appointed by the asset management companies, wait anxiously for such opportunities, wherein they can maximize the returns by purchasing a stock at a lower price in one market and selling the same at a higher price in another. These funds are relatively safer and let the investors enjoy tax-efficiency at the same time.

So, if you redeem the investments after a year, there won’t be any capital gain tax charged on your earning. However, when the arbitrage opportunities do not exist, the investments made in the fund stay in debt instruments and cash.

Monthly Income Plans (MIPs)

These are debt-oriented funds that keep a corpus of 80%-85% in the debt instruments to provide generate income for the investors in the form of dividends at pre-determined intervals of monthly, quarterly, half-yearly and even annually. The remaining asset allocation is made in the equities to let the money grow at the same time.

Difference Between Hybrid and Balanced Mutual Funds

A lot of people ask, what is the difference between hybrid and balanced fund? The answer is simple, the balanced funds form a part of the hybrid fund and are one of the most popular types available in the market. These funds invest a minimum of 65% corpus in equity and equity-related instruments to grow the invested capital. The remaining portion of the assets is invested in the debt instruments to mitigate the equity-related risks. So, from the taxation perspective, an investor stays pretty as it would be qualified as an equity investment, which if held above a year, would be free from any capital gain tax.

Top-performing Hybrid Funds

It’s important to choose the top-performers to ensure you achieve the goal with ease. So, some of the top-performing hybrid funds are explained below.

HDFC Balanced Fund

The fund aims to generate capital appreciation and provide regular income to the investors by investing in a portfolio of carefully chosen equity and debt instruments. Although the pattern of asset allocation can vary, around 60% of the fund corpus goes to the equities and the remaining in debt instruments under normal circumstances. The investors are sitting pretty with a CAGR (Compounded Annual Growth Rate) of 13.46%-18.16% on their investments in the scheme for a period of 1-3 years.

DSP BlackRock Balanced Fund

Seeking long-term capital appreciation and regular income? DSP BlackRock Balanced Fund should be your pick to achieve the same. The fund invests primarily in equity to firm up the growth of the invested capital and a certain portion in fixed income instruments to assure the safety of the money at the same time. The fund has provided a reasonable return of 14.67%, 15.91% and 14.25% in 1, 2 and 3 years, respectively.

Reliance Regular Savings Fund-Balanced Plan

The scheme, with a view to generating capital appreciation and income generation, invests around 50% in the equities and about 25% in debt and money-market instruments having an average maturity of 1-7 years. It has provided 1-year, 2-year and a 3-year return of 20.27%, 17.22% and 13.77%, respectively.

Birla Sun Life MIP II – Wealth 25 Plan

The exposure of the fund assets is predominantly into the debt securities to generate a regular flow of income to the investors. The equity exposure is limited to a maximum of 25%. Despite investing mainly in the debt instruments, the fund has provided a double-digit return of 14.18%, 15.13% and 14.08% in 1-year, 2 years and 3 years, respectively.

Hybrid funds, owing to their flexible asset allocation, can suit both conservative and aggressive investors. So, come and invest in these funds and brighten your future with the accumulated reserves.


Disclaimer: Mutual Fund Investments are subject to market risks, read all scheme related documents carefully before investing.

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