Filing for AY 2024-25 is coming soon
Filing for AY 2024-25 is coming soon
Keep calm and sign up for early access to our super filing platform

Best Hybrid Funds - India's Top Performing Hybrid Mutual Funds to consider to Invest in 2022

Updated on: Mar 17th, 2023


15 min read

Introduction to Best Hybrid Funds

Hybrid funds, as the name suggests, invest across both equity and debt securities to constitute a diversified portfolio. Investing in these funds is a better way of diversifying your portfolio rather than separately investing in several individual securities.

Hybrid funds are further classified into equity-oriented hybrid and debt-oriented hybrid funds depending on their equity exposure. If equity exposure is more than 65%, then it is said to an equity-oriented hybrid fund. If not, it is a debt-oriented fund.

Who Should Invest in Hybrid Funds?

Investing in hybrid funds is suitable for those who are willing to take some risk in exchange for the potential to earn much higher returns than debt funds. Anybody looking to diversify their portfolio should consider investing in these funds.

If you are not willing to assume higher levels of risk and are looking to gain exposure to a portfolio dominated by debt securities, then you may invest in debt-oriented hybrid funds. The exposure of these funds towards equity is on the lower side, generally less than 35%. These funds are relatively stabler than equity funds and may provide higher returns than debt funds.

If you are looking to gain exposure to an equity-oriented portfolio having some exposure toward debt securities, then you may consider investing in hybrid funds. The debt exposure of these funds is restricted to under 35%. This gives you the benefit of diversification and the presence of debt securities mitigates market volatility to some extent.

Taxability of Hybrid Funds

The dividends offered by any mutual fund scheme are added to your overall income and taxed as per the income tax slab you fall under. This method of taxation of dividends is referred to as the classical way of taxing dividends. Until Budget 2020, dividends were made tax-free in the hands of investors as the fund houses paid dividend distribution tax (DDT).

The taxation of capital gains of hybrid funds depends on their type. If the fund is debt-oriented, then the fund is taxed like any other debt mutual fund. If it is equity-oriented, then the rules of taxation of equity funds apply. Therefore, it is important to know the fund’s type you are choosing to invest from the tax point of view.

Risks Associated With Hybrid Funds

Generally, hybrid funds are regarded as a higher level of risk as compared to a debt fund but lower as compared to an equity fund. The fund manager strives to balance the risk-reward ratio by modifying the composition of the fund’s portfolio by following the prevailing market trend.

Hybrid funds carry all the risks that come associated with both equity and debt securities. These funds carry credit risk, interest rate risk, market risk, liquidity risk, concentration risk and volatility risk. All hybrid fund investors automatically assume all these risks on gaining exposure to a hybrid fund.

Things to Consider Before Investing in a Hybrid Fund

You have to consider the following points before investing in a hybrid fund:

Risk profile You need to assess your risk profile and choose to invest in that hybrid fund whose risk levels are matching yours. Investment horizon If your investment horizon is shorter than five years, then you may consider investing in a debt-oriented hybrid fund. If it is longer than five years, then you may choose to invest in an equity-oriented hybrid fund. Equity-oriented portfolios require longer tenures to mitigate market volatility to a greater extent. The type of hybrid fund Since the rate of taxation of capital gains offered by hybrid funds depends on their type, you should essentially be aware of the type of hybrid fund you are choosing to invest in. This helps in planning your taxes better.

Advantages of Investing in Hybrid Funds

The following are some of the advantages of investing in hybrid funds:

  • As these funds invest across both equity and debt securities, it naturally gives you the benefit of diversification.
  • The fund manager modified the composition of the portfolio depending on the market conditions. He tries to reap the best out of both equity and debt segments.
  • These funds are known to provide higher returns than a debt fund while carrying lower levels of risk.
  • First-time equity investors may consider getting started by investing in a hybrid fund. This gives them a controlled exposure to equities.

Quick Summary

Hybrid funds invest in both equity and debt, classified as equity-oriented or debt-oriented. Suitable for those seeking diversification. Taxed on dividend and capital gains. Face risks of equity and debt markets. Consider risk profile, investment horizon, and fund type. Advantages: diversification, managed composition, potential for higher returns. Suitable for first-time equity investors.

Was this summary helpful?

Clear offers taxation & financial solutions to individuals, businesses, organizations & chartered accountants in India. Clear serves 1.5+ Million happy customers, 20000+ CAs & tax experts & 10000+ businesses across India.

Efiling Income Tax Returns(ITR) is made easy with Clear platform. Just upload your form 16, claim your deductions and get your acknowledgment number online. You can efile income tax return on your income from salary, house property, capital gains, business & profession and income from other sources. Further you can also file TDS returns, generate Form-16, use our Tax Calculator software, claim HRA, check refund status and generate rent receipts for Income Tax Filing.

CAs, experts and businesses can get GST ready with Clear GST software & certification course. Our GST Software helps CAs, tax experts & business to manage returns & invoices in an easy manner. Our Goods & Services Tax course includes tutorial videos, guides and expert assistance to help you in mastering Goods and Services Tax. Clear can also help you in getting your business registered for Goods & Services Tax Law.

Save taxes with Clear by investing in tax saving mutual funds (ELSS) online. Our experts suggest the best funds and you can get high returns by investing directly or through SIP. Download Black by ClearTax App to file returns from your mobile phone.

Cleartax is a product by Defmacro Software Pvt. Ltd.

Company PolicyTerms of use


ISO 27001

Data Center


SSL Certified Site

128-bit encryption