How are Hybrid Funds Different from Fixed Income Funds?


  • Does the investment mix of debt and equity instruments make hybrid funds a better option than fixed income funds that invest mainly in debt instruments?
  • Yes, it's true. But you must have a moderate risk appetite to make the most of it.
  • In case you can't afford much risk, you can opt for fixed income funds that aims to deliver fixed returns

Firstly, both hybrid funds and fixed income funds invest in fixed income instruments but in different proportions. While fixed income funds put nearly 80%-90% of the corpus in fixed income instruments such as bonds, debentures, treasury bills, certificates of deposits, commercial paper, hybrid funds keep around 35%-65% in such instruments. The difference in the asset allocation brings a difference in the risk-return ratio of these funds. But, there are other differences too.

Let’s Check Out the Differences

Return – Hybrid funds can generate more returns than fixed income funds. It’s because they invest a significant chunk in equities that can multiply the invested capital over time. Fixed income funds, as the name suggests, would most likely deliver fixed returns on the investments made.

Risk – Hybrid funds are riskier as they invest a significant chunk in equities that are volatile.

Suitability – Fixed income funds would most likely find the favour of conservative investors who can afford very less risk on their investments. Whereas, hybrid funds would be in sync with investors having a moderate risk appetite.

Investment Horizon – The decision to choose any of the two will also depend on how long you wish to stay invested. Hybrid funds would be a better option if you want to invest for long. It’s because equities, where the money is invested, would most likely deliver good returns over the long term. But for that, you must choose a hybrid fund that invests a minimum 60%-65% of the corpus in equities. However, if you want to invest for a shorter period, choose fixed income funds. It’s because the fixed income that you expect to have from these funds would feel good only in the short term. In the long term, inflation will eat too much into such returns and make them negligible.

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If your motto is just to know the difference between the two funds, you are done! However, if you want to invest, you should know what the top-performers have done across each of these two funds.

Top-performing Hybrid Funds

Hybrid FundsRating1-year Return3-year Return5-year Return10-year Return
SBI Equity Hybrid Fund4 Star12.14%9.66%11.06%11.94%
DSP Equity & Bond Fund4 Star13.35%8.08%11.06%11.19%
HDFC Equity Hybrid Fund4 Star6.86%8.01%9.99%14.22%
ICICI Prudential Multi-asset Equity Fund2.26%8.18%8.38%12.37%

Top-performing Fixed Income Funds

Fixed Income FundsRating1-year Return3-year Return5-year Return10-year Return
Mirae Asset Cash Management Fund3 Star7.13%6.94%7.24%7.05%
Reliance Liquid Fund5 Star7.30%7.05%7.53%7.86%
UTI Liquid Cash Fund4 Star7.22%7.03%7.50%7.83%
ICICI Prudential Gilt Fund3 Star11.31%6.66%9.62%7.98%
Aditya Birla Sun Life Government Securities Fund4 Star15.13%7.71%10.32%9.01%

Note – The data is sourced from Value Research as on September 27, 2019.

How to Choose the Best Hybrid and Fixed Income Funds from the List?

To choose the best, you need to compare the performance of the fund with that of its benchmark along with the average return of the category. So, which hybrid fund and fixed income fund stand out considering these two factors?

If we speak of the hybrid funds, it has to be HDFC Hybrid Equity Fund that has proven itself on such counts for a period spanning upto 10 years.

From fixed income funds, Aditya Birla Sun Life Government Securities Fund stands out.

Disclaimer – “Mutual fund investments are subject to market risks. Please read the scheme document carefully before investing”.