The Securities and Exchange Board of India's decision to allow mutual fund houses to offer both aggressive hybrid and balanced hybrid funds is set to revive the balanced hybrid category, with ICICI Prudential Asset Management Co. Ltd launching such a scheme under the revised rules.
More fund houses are expected to follow, aided by the regulatory relaxation and favourable tax treatment.
The market regulator eased its 2017 scheme categorization norms in February, removing the restriction that forced fund houses to choose between offering an aggressive hybrid fund and a balanced hybrid fund.
When the 2017 rules were introduced, most fund houses recategorized their erstwhile balanced funds as aggressive hybrid funds because these schemes already maintained at least 65% equity exposure, including equity arbitrage, enabling them to retain equity-oriented tax status.
How it works
The equity-debt hybrid space has different categories, each sitting at a different point on the equity allocation spectrum. A conservative hybrid fund holds 10-25% in equity and 75-90% in debt, while an aggressive hybrid fund holds 65-80% in equity and 20-35% in debt.
The balanced hybrid fund sits in the middle, with both equity and debt capped at 40-60% of the portfolio on the high and low ends. As and when market movement breaches either limit, the portfolio is to be rebalanced back to a 50:50 mix.
Each hybrid fund category is designed to meet a distinct investor need, said Amol Patel, lead-product specialist at ICICI Prudential AMC, explaining the category's role.
“Conservative hybrid funds prioritize capital preservation, while aggressive hybrid funds focus on long-term wealth creation through higher equity exposure. Balanced hybrid funds seek to bridge this gap by offering a combination of downside protection through debt allocation and growth potential through equity exposure,” he said.
Patel added that the meaningful allocation to debt in balanced hybrid funds helps cushion the portfolio during periods of market volatility, while the equity component enables investors to participate in long-term market appreciation.
A study by ICICI Prudential AMC showed that during the 2008 global financial crisis, between 8 January and 27 October 2008, the Nifty 50 Total Returns Index (TRI) fell 59.5%, while the Crisil Hybrid 50:50 Index fell 27.9%. During the covid crash, between 14 January and 23 March 2020, the Nifty 50 TRI fell 38.3% against the hybrid index's fall of 19.4%.
“The category is suitable for investors who are willing to take on somewhat more risk than they would in a debt fund or an ultra-conservative hybrid fund, but who are not comfortable with the volatility that comes with portfolios having 75-100% equity exposure,” said Ranjit Bhatia, head of investment risk and product strategy at WhiteOak Capital.
“50-50 hybrids are actually truly balanced funds, which can protect investors from downside in falling equity markets. This was originally a good category, but the unfriendly tax treatment of such funds led to most fund houses preferring the aggressive hybrid 65:35 funds or multi-asset funds with a 65% equity allocation. Now with the tax treatment at 12.5% for long-term gains on balanced hybrid funds, there is a revival of interest in them,” said Aarati Krishnan, head of advisory at PrimeInvestor Financial Research.
Under current rules, funds holding between 35% and 65% in equity qualify for a long-term capital gains (LTCG) tax rate of 12.5% if held for more than two years. Since balanced hybrid funds must hold at least 40% in equity, they fall within this band. Gains on units sold within two years are taxed at the investor's slab rate.
What data shows
Historical data shows that the 50:50 blend has held up during periods of equity market correction. In FY20, when the Nifty 50 TRI fell 25%, the Crisil Hybrid 50:50 Index lost 7.3%. In FY16, the Nifty 50 TRI fell 7.8%, while the hybrid index gained 2.2%. In FY26, the Nifty 50 TRI slipped 4%, but the hybrid index was marginally positive.
“Many aggressive hybrid funds, multi-asset funds in the market tend to behave like equity funds on return volatility and capital losses during market falls. Balanced 50:50 funds may suit investors looking to contain downside and invest for shorter horizons of less than five years,” said Krishnan.
A daily three-year rolling return analysis of the Crisil Hybrid 50:50 Index, based on data from 1 December 2003 to 30 April 2026, showed that the 50:50 index delivered an average return of 12.3%, with returns ranging from a high of 28.1% to a low of 1.7%. The index did not deliver a negative return in any of the three-year periods during this stretch.
What investors should do
A balanced hybrid fund is a simple product that aims to keep the equity-debt allocation closer to a 50:50 mix and provides more stability and limits downside risk.
Balanced advantage funds also move dynamically between equity (including equity arbitrage) and debt, but shifts are driven by each fund’s internal model, which varies from fund house to fund house. The equity allocation can also move in a wider range.
A balanced hybrid fund offers a predictable equity-debt allocation. Such funds are suitable for first-time investors, who want to take equity exposure but with limited volatility. However, investors should let these funds build a track record first before considering them.