Hybrid mutual funds blend equity and debt in one portfolio, offering the growth potential of stocks with the stability of bonds, a smart choice for medium-term goals (3–5 years). In 2025, they remain attractive for investors seeking a balance between risk and reward amid market uncertainty. How should I approach them? I have an all-equity portfolio right now with a high-risk appetite.
Advice by Anshi Shrivastava, Head – Personal Finance Training at 1 Finance
Firstly, let’s understand Hybrid Mutual Funds, it is a combination of equity and debt in one portfolio, that offers growth potential with some stability. They’re particularly popular for 3-5 year goals.
Hybrid funds come in three main varieties, each with a different equity-debt mix managed by the fund manager:
| Fund Type | Equity % | Debt % | Typical Investor Profile |
| Conservative Hybrid | 10–25% | 75–90% | Very low risk tolerance |
| Balanced Hybrid | 40–60% | 40–60% | Moderate risk |
| Aggressive Hybrid | 65–80% | 20–35% | High risk |
Addressing the critical issue with Hybrid Funds: The Total Expense Ratio (TER) is the annual fee that investors pay to the fund house for managing a mutual fund scheme. While most investors focus only on returns, a quiet but more impactful reality is often ignored: just like investment gains, the TER also compounds over time.
Let’s understand the impact of TER with the table below:
| Fund Category | Realistic TER | Range Approx. value of Rs 1 lakh after 10 years | Total fees paid over 10 years (approx.) |
| Pure Equity Funds | 0.5–1.1% | Rs 2.65–2.80 lakh | Rs 15,000–24,000 |
| Hybrid Funds | 0.5–2.1% | Rs 2.35–2.85 lakh | Rs 12,000–42,000 |
| Pure Debt Funds | 0.2–0.7% | Rs 1.85–2.00 lakh | Rs 6,000–14,000 |
*Assuming ~11.5–12% gross equity returns & ~7.5% debt return before taxes.
A smarter alternative in this case — Build Your Own Allocation:
In hybrid funds, investors pay a Total Expense Ratio (TER) that is often equal to (or even higher than) that of pure equity funds, despite a substantial portion of the portfolio being parked in lower-return debt instruments. The fund house charges equity-like fees while delivering diluted returns.
Moreover, hybrid funds impose a generic asset allocation decided by the fund manager to suit everyone. This allocation is blind to the unique realities that truly determine long-term wealth outcomes.
Whereas, an individual’s asset allocation is intensely personal. Asset allocation depends on the fragility of an individual’s income stream, their current tax slab, their EPF balance, their life stage, their parents’ medical cover, how many sleepless nights a 40 % drawdown would cost them, the precise year their child needs college fees, their real-estate exposure, and many other situations that may be unique to them.
Here, a proper financial plan would make more sense to decide your ideal asset allocation.
So, instead of going for a single financial product, go for a financial plan.
Can check Financial Tools & Calculators here
Disclaimer: Business Today provides market and personal news for informational purposes only and should not be construed as investment advice. All mutual fund investments are subject to market risks. Readers are encouraged to consult with a qualified financial advisor before making any investment decisions.