Category 03 of 05
Hybrid funds hold both equity and debt in one scheme. The regular income from the debt portion adds stability; the equity portion adds growth. Where a fund sits on that spectrum — and how much say the manager has in shifting the mix — is what separates the six sub-categories.
10–25% in equity, 75–90% in debt. Built for conservative investors who want a modest boost to returns over a pure debt fund, with only a small amount of equity-driven volatility.
A roughly even split between equity and debt. A fund house can offer either a Balanced Hybrid Fund or an Aggressive Hybrid Fund, not both — SEBI treats them as close enough to overlap.
Equity-oriented — typically 65–80% in equity, the rest in debt. Suited to investors who want growth with somewhat more stability than a pure equity fund, and who are comfortable with equity-like risk most of the time.
The equity-debt mix isn't fixed — the manager shifts it based on market valuation signals, raising debt exposure when equity looks expensive and vice versa. The appeal is a smoother ride than pure equity; the trade-off is that the outcome depends on the manager's model being right.
Must invest in at least three asset classes, with a minimum of 10% in each — typically equity, debt, and gold or another commodity. The broader diversification is meant to reduce the portfolio's dependence on any single asset class doing well.
Buys a stock in the cash market and simultaneously sells it in the futures market at a higher price, locking in the price gap rather than betting on the stock's direction. At least 65% is technically in "equity" for tax purposes, but the strategy itself is close to risk-free — the return simply depends on how wide arbitrage spreads are, which tends to shrink in calm, low-volatility markets.
A three-way mix of pure equity, arbitrage positions, and debt — at least 65% in equity (including arbitrage) and at least 10% in debt. Positioned between an arbitrage fund and a balanced hybrid fund on the risk spectrum.
Higher equity allocation means higher risk and higher long-term return potential — that relationship doesn't change no matter how a fund's strategy is described. Read a hybrid fund's actual current equity allocation in its fact sheet rather than assuming from the category name alone, since dynamic and balanced advantage funds in particular can swing their equity exposure substantially over time.