Hybrid funds are the ones that invest in a mix of equities and bonds. At the same time, a debt mutual fund is the one that invests solely in debt instruments, or bonds. It offers regular and consistent returns because it doesn’t take risk of investing in equities.
These funds are usually suitable for a medium-term horizon and are apt for investors looking for a blend of income, safety and modest capital appreciation.
A debt-oriented hybrid mutual fund is the one wherein at least 65 percent of total assets are invested in fixed income securities such as bonds, debentures, government securities. The remainder of 35 percent of funds are invested in equity. Some debt-oriented funds also invest a small portion of their corpus in liquid schemes.
Hybrid funds are also known as asset allocation funds which give an option to invest in multiple assets through a single fund.
Some investors have started investing in debt-oriented hybrid funds because of low returns from pure fixed-income instruments.
These funds take some exposure to equities, so they usually offer relatively higher returns against pure debt funds.