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Exploring hybrid funds: Why do some investors prefer them over equity funds?

Investing wisely is like navigating a complex puzzle. Investors are often confronted with numerous options to grow their money. One such avenue that has gained prominence is hybrid mutual funds. These mutual funds have piqued many investors’ interest due to their unique blend of reward and risk. They blend distinct asset classes to form a diversified investment portfolio. These funds combine both equity and debt instruments, aiming to balance risk and potential returns. The allocation between debt and equities differs across distinct kinds of hybrid mutual funds, offering investors a wide range of risk profiles to select from depending on their financial goals and risk appetite level.

On the contrary, equity mutual funds invest majorly in stocks of companies. They are well-known for their potential to generate inflation-beating returns over the long run. However, they even come with higher risk levels owing to the stock market volatility. So, equity fund investors must prepare themselves for market fluctuations, as such ups and downs in the market can result in considerable profits or losses.

Mentioned here are four reasons for most conservative retail mutual fund investors to consider hybrid funds over equity funds. Read on to know.

Why are hybrid funds considered over equity funds?

Risk diversification

One of the key reasons some investors prefer hybrid funds over equity funds is the built-in risk diversification. By including both equities and debt securities, hybrid funds offer a cushion against extreme market fluctuations. This approach can potentially lead to smoother and more stable returns over time.

Customised risk exposure

Hybrid funds come in various categories, such as aggressive, balanced, and conservative. This allows investors to choose a fund that aligns with their risk appetite and financial goals. Individuals who are not comfortable with the high-risk nature of pure equity funds may find the balanced approach of hybrid funds more suitable.

Mitigating volatility

As the stock market is known for its fluctuations; this volatility may make investors uncomfortable. Hybrid funds with their unique blend of debt and equity can assist meet the effect of extreme market fluctuations, offering security to conservative investors.

Steady income stream

Unlike pure equity funds, certain types of hybrid funds allocate a substantial portion to debt instruments. This allocation can offer investors a regular income stream through interest payments, making hybrid funds an attractive option for those seeking both growth and income.


The choice between hybrid funds and equity funds is a decision that hinges on individual preferences, risk tolerance, and financial objectives. While equity funds offer the allure of potentially high returns, hybrid funds provide a balanced approach, catering to both growth and stability seekers. Hybrid funds’ diversified nature, clubbed with their potential to manage market risk and provide income has made them an attractive choice for investors seeking a middle ground between low-risk and high-risk investment solutions. As always, retail investors need to perform in-depth research and approach a professional advisor, in the case of any confusion before making an investment decision.

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