A mutual fund that holds a combination of equity and debt, balancing long-term growth potential with downside protection.
Hybrid funds maintain a mix of equity and fixed-income instruments. The allocation varies by subtype: aggressive hybrid (65–80% equity), conservative hybrid (10–25% equity), and balanced advantage funds that dynamically adjust the equity-debt ratio based on market valuations.
An aggressive hybrid fund holds roughly 70% stocks and 30% bonds. You get most of equity's growth potential with the bond portion cushioning sharp drawdowns. During a 30% equity market crash, your fund might only fall 20% — the bonds absorb part of the blow.
Static hybrid funds maintain a fixed equity-debt ratio (e.g., 70:30) and rebalance periodically.
Dynamic (Balanced Advantage) funds shift equity allocation between 30% and 80% using valuation-based or momentum models.
The equity portion drives long-term growth; debt provides stability and generates income.
Tax treatment mirrors equity funds if ≥65% is in equities; otherwise taxed as debt.