Know the Different Types of Hybrid Mutual Funds

Last Updated: 13 Jun 2024

Broadly, there are two ways of doing asset allocation. You can either do your own allocation to equity, debt and derivatives or you can rely on a hybrid fund. The hybrid fund is a formula based combination which combines debt, equity, gold and derivatives as the case may be in different proportions. The idea is to provide a complete palate of risk and return classes for different requirements.

What are the different types of Hybrid Funds available?

Hybrid funds offer different combinations of debt, equity, derivatives and gold. They also offer the choice of formula based combination and discretion based combinations. The latter are referred to as dynamic funds where the fund managers has a much higher leeway to decide on the asset mix.

SEBI has given a detailed prescription of what each of the categories of hybrid funds should comprise of. There are 7 such categories of hybrid funds that have been identified by the regulator. These include Balanced Hybrids, Arbitrage Funds, Equity Savings Funds, Conservative Hybrid Funds, Aggressive Hybrid Funds, multi asset class funds and dynamic asset allocation funds. Let us look at each of them in detail.

Balanced Hybrid Funds

Balanced Hybrid Funds approximately balance their holdings in equity and debt and as the word suggests, they are actually funds with a balance between debt and equity. Typically, the equity and debt components in these funds range between 40% and 60%. So a balanced fund can be 40% in equity and 60% in debt or vice versa or it can be any combination in between. The purpose of investing in balanced hybrid fund is capital appreciation in the long-term while balancing the risk with debt in short term. There are not too many Balanced Hybrid funds that are currently available in India.

Arbitrage Funds

Arbitrage Funds are actually treasury products but have bene classified as hybrid funds by SEBI due to the mix of equity, futures and debt that these funds typically deploy. An arbitrage fund typically sells a stock in the equity market and sells equivalent futures in the F&O market so that the premium on futures is locked in as assured profits. Since futures are leveraged products, chunk of the corpus of such funds are invested in equities and hence they will be classified as equity funds for the purpose of taxation. Fund manager leverage volatility of cash and futures market. Typically, cash holdings will be above 65% and the balance in futures margins with positive spread. Here is a list of arbitrage funds in India.

Scheme Name	NAV Direct	Return 1 Year (%) Direct	Return 3 Year (%) Direct	Return 5 Year (%) Direct	Daily AUM (Cr.)
Kotak Equity Arbitrage Fund	31.34	4.63	5.32	5.85	24,641.86
ICICI Prudential Equity Arbitrage	29.02	4.45	5.25	5.76	14,861.67
Nippon India Arbitrage Fund	22.6	4.61	5.46	6	11,678.03
Tata Arbitrage Fund	11.87	4.59	5.82		11,118.88
Aditya Birla Sun Life Arbitrage Fund	22.54	4.61	5.33	5.8	8,562.07
HDFC Arbitrage Fund	15.93	4.24	4.96	5.41	6,870.05
Edelweiss Arbitrage Fund	16.31	4.65	5.55	6.02	6,400.56
UTI Arbitrage Fund	29.45	4.53	5.34	5.8	5,794.98
SBI Arbitrage Opportunities Fund	28.25	4.51	4.93	5.53	5,759.21
IDFC Arbitrage Fund	27.64	4.3	5.21	5.78	5,602.55
L&T Arbitrage Opportunities Fund	16.1	4.43	5.39	5.86	4,506.30
Axis Arbitrage Fund	16	4.7	5.35	5.84	4,140.39
DSP Arbitrage Fund	12.36	4.09	5.21		1,789.20

Overall, the arbitrage funds have a market cap of Rs.115,000 crore in the Indian context and they are quite popular among corporates as treasury products.

Equity Savings Funds

Equity Savings Funds are a combination of equity, debt and futures & options and are an extension of the arbitrage fund. The only difference is that these are not treasury products but they use futures to enhance returns. These are again equity funds as per the tax levy classification.

Scheme Name	NAV Direct	Return 1 Year (%) Direct	Return 3 Year (%) Direct	Return 5 Year (%) Direct	Daily AUM (Cr.)
ICICI Prudential Equity Savings Fund	17.82	10.28	9.12	8.44	4,954.76
HDFC Equity Savings Fund	52.02	18.14	11.69	10.81	2,512.48
SBI Equity Savings Fund	18.84	13.79	12.57	10.77	2,229.30
Kotak Equity Savings Fund	19.44	12.55	11.04	10.36	1,667.95
Axis Equity Saver Fund	18.5	15.39	12.85	12.03	1,156.13
Aditya Birla Sun Life Equity Savings Fund	19.07	14.59	12.05	10.37	543.81

Equity savings funds have a total AUM of Rs.17,000 crore overall and are yet to emerge as a popular standalone product in India.

Conservative Hybrid Funds

Conservative Hybrid Funds would normally invest between 10% and 25% of the total corpus in equity and the balance 75-90% in debt. That is why they are called conservative as they are predominantly debt funds but just a small part of the corpus is in equities so that the additional alpha can be generated. Such funds typically have the objective of regular income for investors due to strong debt exposure.

Scheme Name	NAV Direct	Return 1 Year (%) Direct	Return 3 Year (%) Direct	Return 5 Year (%) Direct	Daily AUM (Cr.)
SBI Debt Hybrid Fund	57.6	14.56	12.78	9.4	5,345.19
ICICI Prudential Regular Savings Fund	59.51	11.2	11.2	10.43	3,388.99
HDFC Hybrid Debt Fund	62.25	14.05	10.77	8.64	2,658.40
UTI Regular Savings Fund	55.14	13.96	9.54	9.05	1,631.66
Aditya Birla Sun Life Regular Savings Fund	54.35	14.48	10.53	8.99	1,419.36
Kotak Debt Hybrid Fund	47.37	14.8	14.41	10.77	1,267.99
Canara Robeco Conservative Hybrid Fund	83.32	11.62	12.94	10.34	1,047.84
Nippon India Hybrid Bond Fund	47.51	10.87	1.95	4	724.23

Conservative Hybrid funds have a total AUM of Rs.20,000 crore overall and are yet to emerge as a popular standalone product in India, especially with debt not being too attractive of late.

Aggressive Hybrid Funds

Aggressive Hybrid Funds can be seen as the counterimage of conservative hybrids. Such Aggressive hybrid funds will typically have between 65-80% in equity and the balance in debt. This small component provides some stability and balance to the predominant equity exposure. These funds tend to outperform conservative hybrid funds in terms of returns, although risk is also higher.

Scheme Name	NAV Direct	Return 1 Year (%) Direct	Return 3 Year (%) Direct	Return 5 Year (%) Direct	Daily AUM (Cr.)
SBI Equity Hybrid Fund	220.7	24.81	17.94	16.14	49,147.89
ICICI Prudential Equity & Debt Fund	237.48	43.17	20.74	16.69	18,651.95
HDFC Hybrid Equity Fund	84.39	27.33	16.8	14.75	18,350.82
Aditya Birla Sun Life Equity Hybrid ’95 Fund	1,176.81	26.04	15.03	12.82	7,783.01
DSP Equity & Bond Fund	260.08	26.07	20.21	16.09	7,705.10
Canara Robeco Equity Hybrid Fund	270.83	25.13	20.03	17.14	7,372.85
Mirae Asset Hybrid Equity Fund	24.85	26.56	19.15	17.33	6,450.06
L&T Hybrid Equity Fund	42.05	25.43	16.35	14.04	5,338.30
UTI Hybrid Equity Fund	264.39	32.03	16.5	13.34	4,391.26
Nippon India Equity Hybrid Fund	73.04	29.56	9.43	10.22	3,338.29
Tata Hybrid Equity Fund	330.1	25.9	15.63	12.7	3,300.67
Kotak Equity Hybrid Fund	27.55	31.01	21.7	15.93	2,290.30
Axis Equity Hybrid Fund	16.9	25.77	19.9		1,871.65
Franklin India Equity Hybrid Fund	194.57	25.47	17.06	13.91	1,432.79
Sundaram Aggressive Hybrid Fund	124.66	27.81	16.42	16.26	1,067.52

Aggressive Hybrid funds have a total AUM of Rs.150,000 crore overall and have emerged as an extremely popular standalone product in India, especially with debt not being too attractive of late, this has become the preferred hybrid option.

Multi-Asset Allocation Funds

Multi-Asset Allocation funds are not too common in India but they combine at least 3 asset classes into a single fund. For example, equity, debt and gold is a classic combination of a multi-asset allocation fund with predominant focus on either of them. The only condition is that each of these should be at least 10%. Of course, gold, equity and debt tend to be uncorrelated largely and that helps in risk diversification.

Scheme Name	NAV Direct	Return 1 Year (%) Direct	Return 3 Year (%) Direct	Return 5 Year (%)	Daily AUM (Cr.)
ICICI Prudential Multi Asset Fund	444.34	35.93	18.52	15.8	12,424.31
Axis Triple Advantage	35	25.77	21.07	16.2	1,634.46
HDFC Multi Asset Fund	51.41	20.2	17.57	12.35	1,387.37
Tata Multi Asset Opportunities Fund	16	25.13			1,213.10
Nippon India Multi Asset Fund	13.54	21.56			1,206.66
UTI Multi Asset Fund	47.45	13.11	10.91	9.85	881.49
SBI Multi Asset Allocation Fund	40.07	13.96	13.52	10.67	508.38
Motilal Oswal Multi Asset Fund	11.11	5.94			216.68
Navi 3 in 1 Fund	29.16	22.98	16.31	12.22	18.27
Quant Multi Asset Fund	80.26	57.72	30.69	18.65

Multi-asset class funds have a total AUM of Rs.19,500 crore overall and are yet to emerge as a popular standalone product in India. To an extent, the unfavourable tax treatment of such funds may be the reason.

Dynamic Asset Allocation Funds

Dynamic Asset Allocation the last of these became extremely popular after the record NFO collections of Rs.14,700 crore in the SBI Balanced Advantage Fund. These are based on discretion of the fund manager and the allocations can go from 0% to 100%in debt and from 0% to 100% in debt. That is theoretical, but in practice, most of the BAFs do keep a bare minimum in both asset classes as matter of internal policy.

Scheme Name	NAV Direct	Return 1 Year (%) Direct	Return 3 Year (%) Direct	Return 5 Year (%) Direct	Daily AUM (Cr.)
HDFC Balanced Advantage Fund	292.9	27.67	14.83	13.42	41,088.00
ICICI Prudential Balanced Advantage Fund	53.69	16.17	13.75	12.6	38,058.77
Kotak Balanced Advantage Fund	15.08	14.77	14.62		12,749.62
Edelweiss Balanced Advantage Fund	39.4	21.03	18.66	16.18	7,047.55
Aditya Birla Sun Life Balanced Advantage Fund	79.89	15.59	14.16	11.73	6,568.75
Nippon India Balanced Advantage Fund	132.12	17.68	13.67	13.15	5,580.04
UTI Unit Linked Insurance Plan Fund	35.13	15.67	10.5	10.22	5,419.97
DSP Dynamic Asset Allocation Fund	21.96	11.14	12.33	10.8	4,767.68
Tata Balanced Advantage Fund	15.38	18.7			4,196.43
IDFC Balanced Advantage Fund	20.4	17.75	14.54	12.66	2,945.21
L&T Balanced Advantage Fund	34.35	10.07	11.37	10.12	2,124.58
Axis Balanced Advantage Fund	15.48	17.7	12.29		1,952.66
Union Balanced Advantage Fund	15.56	11	14.99		1,778.26
Baroda Dynamic Equity Fund	17.3	18.63	19.71		1,711.49
Motilal Oswal Dynamic Fund	16.53	9.37	10.84	11.15	1,080.22

Dynamic funds or Balanced Advantage Funds have a total AUM of Rs.140,000 crore overall and have emerged as an extremely popular standalone product in India. This does not include the Rs.15,000 crore plus managed by SBI and Rs.5,500 crore plus managed by NJ, since both were recent NFOs. If they are added up, the actual numbers would be much bigger.