Hybrid Fund Scheme – Features and Characteristics
A Hybrid Mutual Fund scheme offers a proper mix of equity funds and debt funds for the investor, based on his risk appetite. It is mainly a mix of investment in equity and debt. Hybrid funds are also called asset allocation funds as the amount mobilized is distributed among two or more asset classes. Investment strategy and asset allocation vary from scheme to scheme.
SEBI is the regulator of mutual funds in India. In a recent review, SEBI revised the norms and features of mutual fund schemes including debt funds, for ensuring uniformity in categorization of various schemes announced by different mutual fund houses. The revised norms were published vide its circular SEBI/HO/IMD/DF3/CIR/P/2017/114 dated October 6, 2017.The norms make it easy for the investor to compare similar schemes of different fund houses and take judicious investment decision
There are investors who are willing to take a mid-way path of risk for improved returns. Hybrid funds ensure better return than debt funds along with reduced risks compared to equity funds. A debt fund scheme invests predominantly in debt instruments. The aims of a debt funds are safety, liquidity and steady income. On the other hand, an equity fund scheme invests in equities with more risk and reward. Safety, liquidity and capital appreciation and moderate risk are the investing principles of Hybrid funds.
There are many hybrid funds available for selection for an Indian investor. Majority of the schemes invest in two assets, equity and debt, or gold and debt or equity and gold. Limited number of schemes invests in equity, debt and gold. Hybrid funds that invest in equity and debt classes are very popular among Indian investors, who select suitable scheme based on their risk appetite, objective of investment and time horizon.
Norms issued by SEBI for hybrid mutual fund scheme categorization
The norms and definitions provided by SEBI for classification of hybrid fund schemes are provided below:
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Sl No |
Category of hybrid fund |
Scheme Characteristics |
Hybrid fund scheme feature description |
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Conservative Hybrid Fund
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Investment in equity and equity related instruments: 10% – 25% of total assets; Investment in Debt instruments- 75% -90% of total assets |
An open ended hybrid scheme investing predominantly in debt instruments
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Balanced Hybrid Fund @
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Equity and equity related instruments- 40% – 60% of total assets; Debt instruments- 40% – 60% of total assets No Arbitrage allowed in this scheme |
An open ended balanced scheme investing in equity and debt instruments, without any arbitrage permission
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Aggressive Hybrid Fund @
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Equity and equity related instruments- 65%- 80% of total assets; Debt instruments- 20% – 35% of total assets |
An open ended hybrid scheme investing predominantly in equity and equity related instruments |
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@ Mutual Funds will be permitted to offer either an Aggressive Hybrid fund or Balanced fund |
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Dynamic Asset Allocation or Balanced Advantage |
Investment in equity or debt that is managed dynamically |
An open ended dynamic asset allocation fund
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Multi Asset Allocation ##
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Invests in at least three asset classes with a minimum allocation of at least 10% each in all three asset classes
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An open ended scheme investing in three different asset classes |
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## Foreign securities will not be treated as a separate asset class |
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Arbitrage Fund |
Scheme following arbitrage strategy. Minimum investment in equity & equity related instruments- 65% of total assets |
An open ended scheme investing in arbitrage opportunities
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Equity Savings |
Minimum investment in equity & equity related instruments- 65% of total assets and minimum investment in debt- 10% of total assets Minimum hedged & unhedged to be stated. Asset Allocation under defensive considerations may also be stated in the Offer Document |
An open ended scheme investing in equity, arbitrage and debt
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