It is possible to classify Mutual Funds broadly into three categories – Equity, Debt and Hybrid. Each category has its own pros and cons. Investors can consider investing based on their risk appetite, financial goals and investment time frame. You may come across articles that claim debt funds to be the safest, hybrid fund For being safer than equity, and for being more volatile than either of the equity funds. Don’t get fooled by such claims. The amount of volatility in a mutual fund can vary based on a number of factors including market sentiment and sometimes one of these categories can be more volatile than the other. All Mutual Funds carry some degree of investment risk and therefore, investors should consult their financial advisor to make investment decisions based on their risk tolerance.

debt mutual funds

Debt fund is a mutual fund that invests in fixed income securities and other debt related instruments. Out of its total assets, a debt fund can invest at least 65% to 80% in bonds, corporate securities, treasury bills, commercial papers, etc. The investment objective of debt funds is to offer regular income while protecting the investor’s capital.

Equity Mutual Fund

An equity scheme is an open-ended mutual fund that invests majority of its investible corpus in shares. Equity Funds can be further classified on the basis of Market Cap, Sectoral/Thematic and Tax Saving. These funds are known to have a high risk-return tradeoff and can offer huge capital appreciation in the long run.

Hybrid Mutual Fund
Hybrid Fund is a mutual fund scheme that spreads its assets across equity and debt. Also known as balanced funds, the fund managers of hybrid funds allocate assets to both equity and debt instruments depending on the investment objective and allocation strategy. Hybrid Funds can be further classified as Equity Oriented and Debt Oriented. Equity oriented hybrid funds invest mainly in equity while debt-oriented hybrid funds invest mainly in debt and debt related instruments.

Key Differences Between Hybrid, Equity and Debt Funds

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