Hybrid Funds: Balanced, Aggressive & Conservative

Why Asset Allocation Matters and Where Hybrid Funds Fit

Every investment decision is, at its core, a decision about asset allocation - how much of your savings you place in growth assets versus stability assets. Academic research going back decades, and practical evidence from Indian markets across multiple bull and bear cycles, consistently shows that asset allocation explains the majority of a portfolio's long-term return pattern. Stock-picking and market-timing matter less than most investors assume; what matters more is having the right blend of equity and debt for your time horizon and risk tolerance.

Equity instruments - shares listed on the NSE or BSE, equity mutual funds, ETFs - have delivered superior long-run returns in India. The Nifty 50 Total Returns Index has compounded at double-digit rates over multi-decade horizons, though with enormous year-to-year volatility. Debt instruments - government securities, corporate bonds, certificates of deposit, treasury bills - offer lower but more predictable returns, and they tend to hold their value or even appreciate when equity markets fall sharply, as they did during events like the 2008 global financial crisis, the March 2020 COVID crash, and various other episodes of global or domestic stress.

A portfolio that holds only equities will ride out deep drawdowns that can unsettle even experienced investors. A portfolio that holds only debt may not keep pace with inflation over a 20-30 year investment horizon. The solution most financial planning frameworks advocate is a blend - and the precise blend depends on factors such as the investor's age, income stability, existing wealth, financial goals, and psychological tolerance for watching portfolio values fluctuate.

Hybrid funds operationalise this blending inside a mutual fund structure. Instead of an investor separately buying equity mutual fund units and debt mutual fund units and manually rebalancing twice a year, a hybrid fund's fund manager (or, in rule-based schemes, a pre-defined algorithm) does the rebalancing internally. This is particularly valuable for investors who lack the time, knowledge, or discipline to rebalance on their own.

There is also a behavioural finance argument for hybrid funds. Investors with a purely equity portfolio often panic-sell near market bottoms because the drawdowns feel unbearable. Investors with some debt cushion in the same fund experience lower peak-to-trough portfolio declines, which makes it psychologically easier to stay invested through volatility. This "staying power" can make a significant difference to actual realised returns compared to theoretical returns - because the investor who holds through the downturn participates in the recovery, while the panic-seller crystallises the loss.

In the Indian context, hybrid funds are also relevant because a large section of the population is moving from traditional fixed deposits and small-savings instruments into market-linked products for the first time. For a first-time equity investor who finds a pure equity fund too nerve-wracking, a conservative or balanced hybrid fund can serve as a stepping stone - providing equity exposure within a framework where the debt component offers a visible buffer. SEBI's categorisation ensures that the label on the tin broadly matches what is inside, giving first-time investors a degree of confidence about what they are signing up for.

SEBI's Hybrid Fund Sub-Categories Explained

SEBI's October 2017 categorisation circular identified six sub-categories of hybrid funds. Each one is defined by a mandatory allocation range. A fund house can offer only one scheme in each sub-category (with limited exceptions), which prevents the proliferation of near-identical products under different brand names. Understanding each sub-category is essential before exploring any individual scheme.

Conservative Hybrid Fund This sub-category must invest 75–90% of its assets in debt instruments and 10–25% in equities. The name is apt: the overwhelming majority of the portfolio sits in fixed-income securities, so the fund behaves largely like a debt product with a modest equity kicker. Conservative hybrid funds are suited to investors who prioritise capital preservation and regular income but want slightly higher return potential than a pure debt fund. Retirees supplementing their pension, or investors parking a short-to-medium-term surplus, sometimes consider this category.

Balanced Hybrid Fund This sub-category must invest 40–60% in equity and 40–60% in debt, with no arbitrage permitted. The intent is a genuinely balanced portfolio - roughly equal parts growth assets and stability assets. Importantly, SEBI mandates that a fund house offering a Balanced Hybrid Fund cannot also offer an Aggressive Hybrid Fund in the same product lineup, and vice versa, to prevent crowding.

Aggressive Hybrid Fund This is currently the most popular hybrid sub-category by assets under management (AUM) in India. It invests 65–80% in equities and equity-related instruments and 20–35% in debt. Because equity exceeds 65% of the portfolio, Aggressive Hybrid Funds qualify as equity-oriented funds for taxation purposes under Indian tax law - a significant advantage that we will explore in detail in the taxation section. The debt component provides a cushion during sharp equity market corrections without fully surrendering the growth potential of a predominantly equity portfolio.

Dynamic Asset Allocation Fund / Balanced Advantage Fund These terms are used interchangeably in the market. This sub-category does not have a fixed equity-debt band; instead, the fund manager is permitted to dynamically move equity exposure anywhere from 0% to 100% of the portfolio based on a pre-defined model - typically incorporating market valuation metrics such as price-to-earnings (P/E) ratios, price-to-book (P/B) ratios, or proprietary composite indicators. When markets appear expensive, the model reduces equity; when markets appear cheap, it increases equity. Some schemes use derivatives to manage gross equity exposure while adjusting net equity exposure, making their headline asset-allocation figures a nuanced read. Because of the dynamic nature, investors should study the specific model used by each scheme rather than relying on a single number.

Multi Asset Allocation Fund This sub-category must invest in at least three asset classes, with a minimum allocation of 10% in each. Typical combinations include equities, debt, and gold (via gold ETFs or gold bonds). Some schemes also include overseas equities, REITs, or InvITs as a fourth or fifth asset class. Multi asset allocation funds offer the broadest diversification within a single fund and are meant for investors who want a one-stop-shop portfolio. The presence of gold is particularly noteworthy for Indian investors, given the cultural affinity for the precious metal and its historical negative or low correlation with equities during stress periods.

Equity Savings Fund This sub-category uses a combination of equity, debt, and equity arbitrage to generate relatively stable returns. A typical structure might hold 30–40% in unhedged equity (for growth potential), 10–20% in debt (for stability and income), and the rest in equity arbitrage (buying in the cash segment and simultaneously selling in the futures segment to lock in the cash-futures spread). Because the total equity component - unhedged plus arbitrage - exceeds 65%, equity savings funds are taxed as equity-oriented funds. However, the net unhedged equity exposure is much lower, making the fund less volatile than an aggressive hybrid fund. These funds are sometimes marketed as alternatives to bank fixed deposits for investors seeking post-tax efficiency.

Conservative Hybrid Funds - A Deeper Look

Conservative Hybrid Funds occupy the cautious end of the hybrid spectrum. With 75–90% of the corpus in debt instruments and only 10–25% in equities, the fund's day-to-day behaviour is dominated by fixed-income dynamics. Returns from the debt portfolio depend on the credit quality of the bonds held, the maturity profile (duration), and the prevailing interest rate environment set by the Reserve Bank of India (RBI) through its monetary policy decisions.

The equity slice in a conservative hybrid fund is small but meaningful. Over a long enough holding period, even a 15–20% equity allocation can add a perceptible return premium over a pure debt product, because equity compounding works powerfully at the margins. A fund that earns 7% on its debt portion and 13% on its equity portion, with an 80:20 split, delivers a blended return of approximately 8.2% before costs - noticeably higher than a comparable pure-debt product.

From a risk perspective, the worst-case scenario for a conservative hybrid fund is a simultaneous debt and equity market downturn. Credit events - such as a surprise default by a large corporate borrower - can sharply mark down the debt portfolio. Equity drawdowns further compound the pain. The IL&FS default in 2018 and subsequent credit events involving certain NBFCs illustrated how credit risk can materialise suddenly in Indian debt markets. Investors in conservative hybrid funds should therefore pay attention not just to the equity component but also to the credit quality of the debt portfolio: the proportion of AAA-rated, AA-rated, and lower-rated bonds matters enormously.

Duration risk is another factor. If a conservative hybrid fund holds long-maturity bonds and interest rates rise (as they did in India during 2022–23 when the RBI hiked the repo rate aggressively to combat inflation), the mark-to-market value of the bond portfolio falls. A short-duration conservative hybrid fund with mainly money-market instruments is less exposed to this risk than one holding 10-year government securities.

For taxation purposes, conservative hybrid funds are treated as non-equity (debt-oriented) funds because equity exposure is below 65%. Refer to the latest Finance Act for the applicable capital gains tax rates and holding periods, as these rules have been subject to revisions in recent Union Budgets. Dividend income (technically called income distribution cum capital withdrawal, or IDCW, in mutual fund terminology) is added to the investor's income and taxed at the applicable slab rate.

Conservative hybrid funds can be appropriate for retirees who need a degree of stability, investors with a 2–4 year horizon, or those building an emergency corpus that they want to earn slightly more than a savings account without taking on significant equity risk. They are not designed for long-term wealth creation; that role belongs to equity-heavy sub-categories.

Aggressive Hybrid Funds - India's Most Popular Hybrid Category

Aggressive Hybrid Funds represent the most widely held hybrid sub-category in India by AUM, and it is easy to see why. They capture the upside of the stock market - through a 65–80% equity allocation - while the 20–35% debt allocation provides meaningful downside buffering. Critically, the 65% minimum equity exposure means they are classified as equity-oriented funds for taxation purposes, attracting the same long-term capital gains (LTCG) and short-term capital gains (STCG) treatment as a pure equity fund. Please refer to the latest Finance Act for current tax rates, as these have been revised in recent Budgets.

The equity portion of an aggressive hybrid fund is typically invested in a diversified portfolio of stocks spanning large-cap, mid-cap, and sometimes small-cap companies listed on the NSE and BSE. The fund manager chooses stocks based on the scheme's investment mandate. Some aggressive hybrid funds follow a value-oriented philosophy; others pursue a growth approach. The flexibility in stock selection makes the equity component an active-management exercise.

The debt component - typically 20–35% - is usually invested in relatively high-quality, short-to-medium duration bonds: AAA-rated corporate debentures, government securities, state development loans (SDLs), or money-market instruments. Fund managers use this sleeve not just for income generation but also as a tactical reservoir: during severe equity market sell-offs, the fund manager can liquidate bonds and deploy capital into equities at lower valuations (within the mandated range), effectively implementing a systematic "buy the dip" mechanism inside the fund.

Historically, aggressive hybrid funds in India have demonstrated lower volatility - measured by standard deviation - than pure equity funds, while delivering competitive long-run returns. During sharp drawdowns such as March 2020, the debt sleeve cushioned the fall: while the Nifty 50 fell roughly 38% from its January 2020 high to the March trough, well-structured aggressive hybrid funds fell somewhat less, making recovery psychologically and financially easier.

Investors should be aware, however, that aggressive hybrid funds are not capital-protected products. In a severe bear market - an extended equity decline coupled with interest rate rises that hurt the bond portfolio - an aggressive hybrid fund can deliver negative returns over one-year and even two-year horizons. They are best held for a minimum of five years to smooth out equity market cycles.

From a goal-planning perspective, aggressive hybrid funds are often considered for medium-to-long-term goals such as children's education planning (with a 7–12 year horizon), home down payment accumulation (5–8 years), or general wealth creation where the investor wants equity-driven returns without the full stomach-churning volatility of a pure mid-cap or small-cap fund. SIP (Systematic Investment Plan) contributions to aggressive hybrid funds are popular because rupee cost averaging compounds well over multi-year periods.

Expense ratios are an important consideration. Aggressive hybrid funds carry higher expense ratios than pure equity index funds because of the active management involved across two asset classes. Over a 10-year investment horizon, a 0.5% difference in expense ratio can compound to a meaningful gap in terminal wealth. Comparing the TER (Total Expense Ratio) of the direct plan versus the regular plan is worthwhile for investors who are comfortable transacting through an online direct platform.

Dynamic Asset Allocation and Balanced Advantage Funds

Dynamic Asset Allocation Funds - more commonly marketed in India as Balanced Advantage Funds (BAFs) - represent a philosophically distinct approach to hybrid investing. Instead of operating within a fixed equity-debt band, these funds attempt to be inherently tactical: increasing equity when markets are cheap and reducing it when markets are expensive.

The mechanics vary from fund house to fund house. Most BAFs use a quantitative model that incorporates one or more valuation metrics. The most common input is the market's P/E ratio relative to its historical average: when the Nifty 50's P/E is well above its long-run median, the model signals richness and the equity allocation is reduced (replaced by debt or even moved to cash and arbitrage positions). When P/E is below the long-run median, the model signals cheapness and equity is increased. Some fund houses supplement P/E with P/B ratios, earnings growth forecasts, credit spreads, or macroeconomic indicators from RBI data releases.

A key nuance of BAFs is the difference between gross equity and net equity. Many BAF schemes maintain a higher gross equity exposure (holding actual shares listed on NSE/BSE) while simultaneously holding equity futures short positions to hedge part of that exposure. The hedged portion behaves like an arbitrage position - earning the cash-futures spread - while the unhedged portion provides the actual equity market exposure. This structure allows the fund to maintain above-65% gross equity for taxation purposes even when the effective market exposure is much lower. Investors should understand that the "65% equity" qualification for equity-oriented tax treatment does not necessarily mean the fund has 65% net equity market risk.

Balanced Advantage Funds attract investors who distrust their own ability to time markets or rebalance portfolios. By outsourcing this decision to a model, the investor removes the emotional temptation to overweight equities during bull markets (when greed peaks) or panic-sell equities during bear markets (when fear peaks). The model enforces a counter-cyclical discipline that most individual investors find difficult to maintain on their own.

That said, BAFs are not a panacea. The model's effectiveness depends on the valuation framework chosen. If the P/E model signals that markets are expensive and the fund reduces equity, but markets continue to rally for another two or three years, the fund will underperform pure equity benchmarks during that period. Investors may feel frustrated watching equity indices climb while their BAF delivers more muted returns. This is the inherent trade-off: you sacrifice some upside potential in exchange for downside protection.

BAFs have grown rapidly in India, accumulating large AUMs, because they offer a compelling pitch to nervous investors: "you don't have to time the market; the fund does it for you." Whether the specific model used by any given fund house has been genuinely effective - versus simply being back-tested to look good - is something investors should scrutinise by examining the fund's actual equity-allocation history and comparing it to subsequent market performance. SEBI mandates that this information be disclosed in fund factsheets, which are published monthly and available on the fund house's website and AMFI's (Association of Mutual Funds in India) online platform.

Multi Asset Allocation Funds and Equity Savings Funds

Multi Asset Allocation Funds bring a third (or more) asset class into the hybrid portfolio, most commonly gold via gold ETFs or Sovereign Gold Bonds. The mandatory minimum of 10% in at least three asset classes means no single asset class can dominate to the exclusion of others, creating a genuinely diversified one-fund solution.

The case for holding gold alongside equities and debt is rooted in correlation analysis. Gold in India has historically exhibited low or negative correlation with equity markets during stress episodes. When equity markets fell sharply in 2008–09, 2011, 2015–16, and March 2020, gold prices (both internationally in USD and domestically in INR) held up well or rose. Part of the reason is flight-to-safety demand; part of it is INR depreciation - when Indian equities fall during global risk-off episodes, the INR typically weakens as foreign institutional investors (FIIs) pull capital out, which raises the INR price of gold even if the global USD price stays flat.

For Indian investors with an existing cultural and financial allocation to physical gold, a multi asset fund can replace scattered physical gold purchases with a more efficient, liquid, and paper-form gold holding - within a single fund alongside equity and debt. It also removes the storage, insurance, and purity concerns associated with physical gold.

However, multi asset allocation funds face a taxation complexity. If the equity allocation is below 65%, the fund is taxed as a non-equity (debt-like) product. Many multi asset funds fall into this category precisely because allocating meaningfully to both debt and gold means equity cannot always be kept above 65%. Refer to the latest Finance Act for current taxation rules on such funds.

Equity Savings Funds occupy a unique niche. Their three-part structure - unhedged equity, arbitrage equity, and debt - creates a product with moderate return potential, relatively low volatility, and (because gross equity is above 65%) equity-oriented taxation. The arbitrage component locks in the spread between cash and futures markets: when a stock trades at ₹1,000 in the NSE cash segment and the corresponding near-month futures contract trades at ₹1,010, the fund simultaneously buys the cash position and sells the futures contract, locking in ₹10 (roughly 1% on a 1-month trade, or 12% annualised before costs). This return is largely market-neutral and helps stabilise the portfolio.

Because the actual unhedged equity exposure of an equity savings fund might be only 25–35% of the portfolio, these funds are considerably less volatile than an aggressive hybrid fund or a balanced hybrid fund. They are sometimes positioned as more tax-efficient alternatives to short-term debt funds or liquid funds for investors with 1–2 year horizons who are in higher income-tax brackets. However, investors should verify current tax rules directly, as the Finance Act governing mutual fund taxation has seen significant changes in recent years.

One important feature of both multi asset funds and equity savings funds is their complexity. The variety of instruments - equities, futures, bonds, gold ETFs, perhaps REIT units - means the portfolio is harder for a retail investor to evaluate without reading the monthly factsheet carefully. Transparency is not a concern under SEBI's disclosure norms (fund houses must publish monthly portfolio statements), but interpretation requires some financial literacy.

How Hybrid Funds Are Taxed in India

Taxation is one of the most practically important aspects of any mutual fund investment, and hybrid funds have a notably varied tax treatment depending on sub-category.

The pivotal threshold under current Indian tax law is whether a fund qualifies as an "equity-oriented fund" - which broadly requires a minimum of 65% of the fund's assets to be invested in equity and equity-related instruments of domestic companies. Funds meeting this threshold are subject to equity capital gains taxation; funds below this threshold are taxed as debt funds.

For equity-oriented hybrid funds (Aggressive Hybrid, Balanced Advantage, Equity Savings, and typically Dynamic Asset Allocation funds that structure their portfolios accordingly), the general principle is: - Short-term capital gains (units held for 12 months or less) are taxed at a specified rate. - Long-term capital gains (units held for more than 12 months) enjoy a lower tax rate, with an exemption threshold that has historically applied up to a specified limit.

For non-equity (debt-oriented) hybrid funds (Conservative Hybrid, many Multi Asset Allocation funds), the rules have changed significantly in recent Union Budgets, particularly the Finance Act 2023. The indexation benefit that previously applied to long-term debt fund gains was substantially curtailed for funds with equity below a certain threshold. Investors should check the current rules under the latest Finance Act, as the distinction between different debt fund categories for tax purposes can affect post-tax returns meaningfully.

Dividend income (officially called Income Distribution cum Capital Withdrawal, or IDCW, since SEBI's 2021 reclassification) is taxable in the hands of the investor at their applicable income tax slab rate, regardless of whether the fund is equity-oriented or not. A resident individual in the 30% tax bracket pays 30% on any IDCW received from a hybrid fund, making the IDCW option tax-inefficient for higher-income investors compared to the growth option where gains are realised only upon redemption.

Securities Transaction Tax (STT) applies to equity-oriented mutual fund units at the time of redemption. This is a small cost but worth noting.

For investors using Systematic Transfer Plans (STPs) - gradually moving money from a liquid or debt fund into a hybrid fund - each transfer is treated as a redemption from the source fund and a purchase in the target fund. This means capital gains tax may apply on each STP instalment from the source fund if gains have accrued, which is an important planning consideration.

Hybrid fund investors should consult a qualified tax professional or chartered accountant for personalised advice, especially for large lump-sum investments or complex portfolio situations. The tax landscape for mutual funds in India is subject to change with each Union Budget, and this article reflects general principles rather than specific current rates.

Selecting the Right Hybrid Sub-Category: A Framework

With six distinct hybrid sub-categories available in India, choosing among them requires a clear-headed assessment of your personal financial situation rather than relying on marketing materials or past performance alone. Here is a structured framework.

Step 1: Define your investment horizon. Conservative hybrid funds are suitable for 2–4 year horizons. Balanced hybrid funds suit 3–5 year horizons. Aggressive hybrid, dynamic asset allocation, and multi asset funds generally require a 5+ year commitment to allow equity market cycles to play out. Equity savings funds can work for 1–3 year horizons.

Step 2: Assess your risk tolerance honestly. Risk tolerance is not what you think you can bear in a hypothetical - it is how you actually behaved the last time your portfolio fell 20–30%. If you check your portfolio daily and lose sleep over short-term losses, the conservative hybrid or equity savings category is more appropriate than an aggressive hybrid. If you can genuinely ignore short-term volatility and focus on a 7-10 year goal, aggressive hybrid or dynamic asset allocation funds may be worth considering.

Step 3: Consider your tax situation. Higher-income investors in the 30% slab have a strong incentive to choose equity-oriented hybrid funds (with their lower LTCG tax rate after one year of holding) over non-equity hybrid funds. For lower-income investors or those in lower slabs, the tax differential may be less decisive.

Step 4: Evaluate the fund's actual portfolio construction. Read the monthly factsheet published on the fund house's website or on AMFI's platform (www.amfiindia.com). Check: What is the actual equity allocation? What are the credit ratings of the bonds? What is the portfolio duration? How frequently does the fund rebalance? For BAFs, what model drives the equity allocation decision and what has the model actually done historically (not just in back-tests)?

Step 5: Look at costs. Compare the Total Expense Ratio (TER) of the direct plan versus the regular plan. Across a 10-year horizon, the difference between a 0.8% TER direct plan and a 1.8% TER regular plan on a ₹10 lakh investment can amount to several lakhs of rupees in foregone compounding. Direct plans are available on fund house websites and through registered investment advisers (RIAs) who charge a fee rather than earning commissions.

Step 6: Do not chase recent returns. Hybrid funds' relative performance rotates with market conditions. A conservative hybrid fund that appeared to outperform an aggressive hybrid fund during a bear market will typically underperform during the subsequent bull run. Evaluate funds over complete market cycles - at least 7-10 years - rather than the last 1-3 years.

Step 7: Check fund manager track record and fund house stability. The equity component of a hybrid fund is actively managed, so the fund manager's philosophy and tenure matter. Frequent fund manager changes are a yellow flag. Similarly, check the fund house's AUM, parentage, and any regulatory actions or compliance issues. SEBI's website publishes enforcement actions and circulars that are worth a periodic check.

Hybrid Funds vs Pure Equity and Pure Debt Funds

A natural question for any investor is whether a hybrid fund is genuinely superior to simply holding separate equity and debt funds and rebalancing manually. The answer depends on several factors.

Arguments in favour of hybrid funds:

First, convenience and discipline. Most retail investors do not rebalance their portfolios consistently. Studies of investor behaviour in Indian markets show that people tend to buy more equity after prices have already risen and sell after prices have fallen - the exact opposite of a rational rebalancing discipline. A hybrid fund with a built-in rebalancing mechanism removes this behavioural trap.

Second, tax efficiency of internal rebalancing. When a hybrid fund's manager rebalances - say, selling some equity after a market rally to buy debt and bring the portfolio back to target allocation - this internal rebalancing does not generate a capital gains tax event for the investor. If you were to replicate this manually by redeeming from your equity fund and buying a debt fund, you would incur capital gains tax on the redemption. This is a genuine and material advantage of hybrid funds for investors who would otherwise rebalance frequently.

Third, lower entry barrier. A single hybrid fund SIP of ₹500 or ₹1,000 per month gives exposure to both equities and debt. Separately maintaining an equity fund SIP and a debt fund SIP and periodically rebalancing requires more active management.

Arguments in favour of separate funds:

First, flexibility and customisation. A sophisticated investor who wants a very specific equity-debt ratio - say, 55% equity with 30% debt and 15% gold - may not find a hybrid fund that precisely matches this preference. Separate funds allow exact calibration.

Second, ability to choose best-in-class for each asset class. If you believe that a specific large-cap index fund offers the best risk-adjusted equity exposure, and a specific short-duration debt fund offers the best risk-adjusted fixed-income exposure, there is no hybrid fund that packages this exact combination. Separate funds let you pick the best vehicle for each asset class independently.

Third, transparency. Individual asset class funds are simpler to evaluate. A pure Nifty 50 index fund's performance is easy to benchmark against the Nifty 50 index. A hybrid fund's performance involves benchmarking against a blended benchmark, which is less intuitively obvious to most investors.

For most retail investors - particularly those who are early in their investment journey, who value simplicity, who may not rebalance consistently, or who are moving from fixed deposits to market-linked products for the first time - hybrid funds offer a sensible, cost-effective, and behaviourally supportive solution. For more experienced investors with larger portfolios, a separately managed multi-fund approach with periodic rebalancing may deliver better customisation.

It is also worth noting that hybrid funds and separate asset class funds are not mutually exclusive. Many investors hold a core hybrid fund as the anchor of their portfolio and supplement it with targeted equity or debt exposures for specific goals.

Example

Key benefits

How it works

1. 1
   Fund Collection and Unit Allotment

   Investors invest money into the hybrid fund (via lump sum or SIP), and the fund house allots units at the prevailing Net Asset Value (NAV) of that day, which is calculated and declared after market close.

2. 2
   Portfolio Construction Across Asset Classes

   The fund manager builds a portfolio allocating assets to equity shares (listed on NSE/BSE), debt instruments (government securities, corporate bonds, money market papers), and potentially other assets like gold ETFs, according to the sub-category's SEBI-mandated allocation range.

3. 3
   Active Management and Security Selection

   Within each asset class sleeve, the fund manager selects specific securities based on research, valuation analysis, credit assessment, and the fund's stated investment mandate - for instance, a value-oriented approach to equity stock selection or a credit-quality-first approach to bond selection.

4. 4
   Ongoing Monitoring and Rebalancing

   As market prices move, the equity-to-debt ratio drifts from the target. The fund manager periodically rebalances - buying or selling securities - to bring the allocation back within the SEBI-mandated range. This internal rebalancing is transparent and does not trigger a taxable event for unit holders.

5. 5
   NAV Calculation and Disclosure

   Every business day, the fund computes its NAV by marking all holdings to market prices (using NSE/BSE closing prices for equities and credit-rated valuation models for bonds). The NAV is published on the AMFI website and the fund house's website by 11 PM IST on the same day.

6. 6
   Dividend/IDCW or Growth Accumulation

   Investors in the IDCW option receive periodic income distributions from the fund (taxable at their slab rate). Investors in the growth option see all gains reinvested, with the NAV rising over time as the underlying portfolio appreciates.

7. 7
   Redemption and Settlement

   When an investor redeems units, the fund processes the redemption at the applicable NAV (same-day NAV if the request is submitted before the cut-off time, typically 3 PM IST). Proceeds are credited to the investor's bank account within standard T+2 or T+3 settlement timelines as specified in the scheme documents.

Formula

Hybrid Fund NAV = (Market Value of Equity Holdings + Market Value of Debt Holdings + Other Assets – Liabilities) / Total Number of Outstanding Units

Key takeaways

Frequently asked questions

Related terms