Equity vs Debt vs Hybrid Mutual Funds: Investing to grow your wealth hasn’t been this easy and diverse as it is today. With minimal starting capital, transparency between investors and firms, and ease of access to information, the markets have completely revolutionized how people manage their money.

But with more and more investment opportunities, it sometimes gets confusing if you don’t know the types of investments. We will talk about the mutual fund form of investing, and compare three crucial types of mutual funds – Equity Vs Debt Vs Hybrid Mutual Funds. 

What Are Mutual Funds?

Let’s understand the meaning of mutual funds using a hypothetical scenario –

Imagine you’re at the market and you come across a fruit vendor. He offers one kg of apples for ₹200, one kg of oranges for ₹150, and one kg of pomegranate for ₹250. If you bought one kilo of each type of fruit, you’d spend = ₹250 + ₹200 + ₹150 = ₹600 rupees for three different types of fruit.

Alternatively, the fruit vendor gives you another choice. You can buy a fruit basket with the same fruits weighing one kilo, split into different weights – 300 gms of apples, 400 gms of oranges, and 300 grams of pomegranate, all at a price of ₹250. Same fruits, but with different weights, giving the customer a diverse palate.

Mutual funds, more or less, operate in a similar fashion. Instead of fruits, it is a basket of different securities, such as equity, debt, and ETFs, with different weights. Each unit of a mutual fund consists of securities with individual weights, depending on the fund sector and size.

What Are Equity Mutual Funds?

Equity mutual funds primarily invest in only equity securities of different companies across various industries. These funds are sub-categorized by the size of the companies within the mutual fund as – Large Cap Fund, Mid Cap Fund, and Small Cap Fund. 

Ideally, an equity fund should consist of only equity securities but as per SEBI Mutual Fund Regulations, at least 65 percent of the scheme’s assets should be invested in equity & equity-related securities.

What Are Debt Mutual Funds?

A debt fund is a mutual fund scheme that invests in debt securities – bonds, fixed-income securities, money market instruments, etc. Because of this, they are also known as bond funds or income funds. Such securities are known for paying regular interest on the bonds held, and the interest earned adds to the net asset value of the fund.

Debt funds are considered to be safer than equity funds because they only invest in fixed-income securities, and are less affected by a crash in the market. While the returns from debt funds are fixed and moderate, it is lower than the returns of equity funds. 

What Are Hybrid Mutual Funds?

So far, we’ve covered equity funds and debt funds and they only invest in a specific type of security. Combining both types, we have hybrid mutual funds. Hybrid funds invest in both equities and debt instruments. By doing this, they combine the safety and moderate returns of debt with the high risk/high reward factor of equities, giving investors a diverse, well-balanced portfolio.

113 Equity vs debt vs hybrid fund

Equity vs Debt vs Hybrid Mutual Funds – What’s The Difference?

S. NoComparisonEquity FundsDebt FundsHybrid Funds
1DefinitionA mutual fund scheme that mainly invests in equity and equity equivalent securities.A fund that invests in debt and debt-like securities.Invests in both equity and debt securities.
2ROIThe returns are dependent on the market, as the fund only invests in listed equities that are traded on exchanges.Returns are much lower than equity mutual fundsHybrid Funds depend on the market and have some stability.
3RiskSince their performance is market-dependent, it carries high risks.Low Level Of RiskModerate and balanced levels of risk
4Ideal ForHigh-Risk Investors who have the higher risk toleranceConservative InvestorsInvestors who want to diversify their portfolio

Which Is The Best Mutual Fund? Or How To Choose The Best Mutual Fund?

We have compared Equity Vs Debt Vs Hybrid Mutual Funds, but within each of them are sub-categories of mutual funds. How do we know which is the best mutual fund for investing?

Investing goals vary from person to person, and so does risk appetite. Not every investor enters the market with the same goals and mindset, so it is very difficult to determine a mutual fund that works best for you. 

You can choose the right mutual fund by studying the fund, and its movement over the years, and check if the features of the fund align with your investment goals, risk tolerance, and timeline.

Also Read: 10 Best YouTube Channels To Learn Share Market in India!

In Closing

We have reached the end of our article. We hope you were able to understand our Equity Vs Debt Vs Hybrid Mutual Funds comparison. To learn more about mutual funds, visit the official site of AMFII (Association Of Mutual Funds in India), sign up on Fingrad, and start learning today!

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