What are the key differences between equity debt and hybrid fund

In the gamut of mutual funds, one of the big advantages is the wide variety of funds you get to choose from. If you want to invest in the equity market indirectly, there are equity funds of different types. If you want a low risk product, then there are debt funds. Of course you can also combine the two with hybrid funds. Typically, a hybrid equity fund or an equity hybrid fund is an amalgam of equity and debt in different proportions based on whether the investors needs an aggressive solution or a conservative solution

Did you know that if a hybrid fund has more than 65% exposure to equities, then it is classified as an equity fund for tax purposes. However, for the purpose of our understanding of fund categories, we will follow the SEBI definition of different categories of funds. Here we look at in detail at the difference between equity fund and hybrid fund. For greater clarity, we also compare and contrast equity funds, debt funds and hybrid funds based on their essential features, their categories and finally whom it is suited to.

Understanding equity mutual fund schemes

What do we really understand by an equity fund. As per SEBI definition, an equity fund scheme is a scheme that primarily and predominantly invests in equities and equity related instruments. The idea here is to seek long term capital appreciation and long term wealth creation. Such equity funds may be volatile in the short term.

Let us look at the different category of equity funds available in India.

For whom is the equity fund suitable. It depends on waiting period and risk appetite. Equity mutual funds can be volatile in short term. Only for investors with perspective of 7-8 years or more. Equity funds call for higher risk appetite. It is an important tool of financial planning especially for meeting long term financial goals.

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Understanding Debt mutual fund schemes

What do we understand by debt fund. As per SEBI definition, debt funds invest primarily in short term and long term bonds issued by the government or corporates. Debt funds are about stability, lower risk and regular earnings. Debt funds in India are classified by duration and by credit quality.

Let us look at the different category of debt funds available in India.

Debt funds are meant for more conservative investors. However, not all debt funds are free of risk. While G-Secs do not carry default risk, they do carry interest rate risk and inflation risk. Secondly, credit risk funds do have an element of default risk too and that has to be taken care of. People add debt fund to their portfolio to give more stability.

Understanding Hybrid mutual fund schemes

What do we really understand by a hybrid fund. Typically, as per the SEBI definition, hybrid funds invest in a combination of equity and debt. There are different levels of aggression depending on whether the hybrid is dominated by debt or by equity.

Let us look at the different category of hybrid funds available in India.

Hybrid funds are gaining popularity in India and is used by many investors as a temporary option while shifting from equity to debt or vice versa.