Balanced Hybrid Fund
Also written Balanced hybrid funds
An open-ended hybrid scheme with 40% to 60% in equity and 40% to 60% in debt, and no arbitrage allowed. It sits below the aggressive hybrid fund on the workbook's risk ladder.
In plain language
A balanced hybrid fund keeps a roughly even split between shares and bonds.
The equity side is there for growth; the debt side is there for stability and regular income. Because neither side is allowed to dominate, the fund tends to fall less than a pure equity fund in a bad market and rise less in a good one.
The rules also shut one door: the fund cannot use arbitrage to dress up its equity allocation. Its equity exposure has to be real equity exposure.
How it works
SEBI category definitions for hybrid schemes (Chapter 2):
| Category | Equity and equity related | Debt |
|---|---|---|
| Conservative Hybrid | 10% to 25% | 75% to 90% |
| Balanced Hybrid | 40% to 60% | 40% to 60% |
| Aggressive Hybrid | 65% to 80% | 20% to 35% |
| Multi Asset Allocation | At least 10% in each of at least three asset classes | |
| Arbitrage | Minimum 65% (debt only in G-secs under 1 year and G-sec repo) | |
| Equity Savings | Minimum 65%; net equity 15% to 40%; debt minimum 10% | |
| Dynamic Asset Allocation / Balanced Advantage | Managed dynamically |
For the balanced hybrid fund specifically: "An open-ended balanced scheme investing in equity and debt instruments… No arbitrage is permitted in this scheme."
In hybrid categories the residual portion may go into InvITs (except arbitrage funds), ETCDs, Gold ETFs and Silver ETFs.
Risk ladder (Chapter 12, Illustration 12.1.6): Arbitrage → Conservative hybrid → Equity savings → Dynamic asset allocation → Multi asset allocation → Balanced hybrid → Aggressive hybrid.
Selection view: a hybrid scheme is simpler than building your own mix of equity and debt funds, but you accept the scheme's mix. Evaluate the equity component (large, mid or small caps; sectors) and the debt component (credit quality) separately.
A worked example
Amounts and returns are illustrative.
Meera, 48, invests Rs 10,00,000 in a balanced hybrid fund.
Allowed ranges on Rs 10 lakh:
Equity: 40% to 60% → Rs 4,00,000 to Rs 6,00,000
Debt: 40% to 60% → Rs 4,00,000 to Rs 6,00,000
The fund holds 55% equity, 45% debt. In a year when equities fall 20% and its debt earns 7%:
Equity: 5,50,000 × −20% = −Rs 1,10,000
Debt: 4,50,000 × 7% = +Rs 31,500
Net = −Rs 78,500 (−7.85%)
An aggressive hybrid fund at 75% equity, 25% debt in the same year:
Equity: 7,50,000 × −20% = −Rs 1,50,000
Debt: 2,50,000 × 7% = +Rs 17,500
Net = −Rs 1,32,500 (−13.25%)
That difference is why the workbook ranks the aggressive hybrid fund above the balanced hybrid fund on risk.
A rule check: the balanced fund cannot count arbitrage positions toward its 40% to 60% equity. A fund that did so would be using a permission reserved for arbitrage and equity savings schemes.
Why NISM asks about it
Chapter 2 (Concept and Role of a Mutual Fund) gives the SEBI hybrid categories with their allocation ranges; Chapter 12 (Mutual Fund Scheme Selection) ranks hybrid categories by risk and explains how to evaluate them. Expect: 40% to 60% in both, no arbitrage, and a ranking question against the conservative and aggressive hybrid funds.
Common exam traps
- Balanced hybrid: 40% to 60% equity and 40% to 60% debt. Aggressive hybrid: 65% to 80% equity. Conservative hybrid: 10% to 25% equity.
- No arbitrage is permitted in a balanced hybrid fund.
- Balanced hybrid is not Balanced Advantage. Balanced Advantage is the Dynamic Asset Allocation category, managed dynamically.
- Risk ladder: balanced hybrid is below aggressive hybrid but above multi asset allocation.
- "Conservative" in conservative hybrid refers only to the equity allocation, as the workbook stresses; the debt side still needs a credit check.
- Residual portion may include InvITs, ETCDs, Gold and Silver ETFs.
Check yourself
1.Which hybrid scheme permits no arbitrage, and what are its allocation limits?
- a)Aggressive Hybrid Fund — equity 65 to 80 per cent
- b)Balanced Hybrid Fund — equity 40 to 60 per cent and debt 40 to 60 per cent
- c)Conservative Hybrid Fund — debt 75 to 90 per cent
- d)Arbitrage Fund — minimum 65 per cent equity
Show the answer
Answer: (b) Balanced Hybrid Fund — equity 40 to 60 per cent and debt 40 to 60 per cent
"Balanced Hybrid Fund: An open-ended balanced scheme investing in equity and debt instruments. The investment in equity and equity related instruments shall be BETWEEN 40 PERCENT AND 60 PERCENT of total assets while investment in debt instruments shall be BETWEEN 40 PERCENT AND 60 PERCENT. NO ARBITRAGE IS PERMITTED IN THIS SCHEME." That last clause is the distinguishing feature and is examined for exactly that reason. The neighbouring categories: Aggressive Hybrid is "equity 65 to 80 percent... debt 20 to 35 percent"; Conservative Hybrid is "debt between 75 and 90 percent... equity between 10 and 25 percent"; and the Arbitrage Fund is a separate category investing "in arbitrage opportunities" with "minimum investment in equity and equity related instruments 65 percent" and debt exposure "limited to government securities with maturity less than 1 year as well as repo of government bonds only." Also note Multi Asset Allocation — at least three asset classes, 10% each, with foreign securities not treated as a separate asset class.
Where this is taught
Free preparation for NISM Series V-DRelated terms
- Exchange Traded FundA mutual fund scheme whose units are listed and traded on a stock exchange like a share, so you transact at live prices through the day instead of at one end-of-day NAV.
- Fund factsheetThe monthly scheme summary an AMC publishes voluntarily — portfolio, performance, risk measures and investment details in one document. It is an AMFI best practice, not a statutory requirement.
- Focused FundAn open-ended equity scheme holding at most 30 stocks, with at least 80% in equity, that must state where it focuses (multi, large, mid or small cap). Riskier than a diversified fund, less than a sector fund.
- Sector fundAn open-ended equity scheme investing at least 80% in one sector, such as banking or pharma. The riskiest step on the diversification ladder; best used tactically as a satellite holding.
- Composite (hybrid) indexAn index that blends an equity index and a bond index in fixed proportions — reset periodically — to benchmark portfolios that hold both asset classes.
- I-BexICICI Securities' Sovereign Bond Index, built on government securities — an umbrella index for the whole market plus three maturity sub-indices, Si-Bex, Mi-Bex and Li-Bex.
- Arbitrage fundA mutual fund that buys in the cash market and simultaneously sells in the futures market to lock in the price difference, giving low NAV volatility similar to a liquid fund.