As the name suggests, hybrid funds, which were popularly known as balanced funds earlier, invest in a combination of equity and debt assets.
These funds combine the compounding potential of equity assets with the relative stability of debt assets. They are, therefore, better suited for investors with a moderate risk appetite such as those approaching retirement.
Sebi classifies hybrid funds into seven different categories depending on the mix of equity and debt—aggressive, balanced, conservative, multi asset allocation, dynamic asset allocation, arbitrage and equity savings funds.
Hybrid funds with more than 65% equity allocation are taxed as equity funds and those with less than 65% equity as debt funds.