Debt Funds vs Hybrid Funds – What is the Difference?

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Debt Funds vs Hybrid Funds – What is the Difference?

As your goals, circumstances, budget, and needs change, so does your risk appetite and investment strategy. Thankfully, there are several types of mutual funds that you can invest in as per your risk appetites, such as equity funds, debt funds, hybrid funds, and more. Out of these, equity mutual funds carry the highest level of risk. And the other two mutual funds can be ideal for investors with a relatively lower risk appetite. However, how do you choose the right low-risk fund? Keep reading to find out.

Difference between debt funds vs. hybrid funds


Debt funds are open-ended mutual funds. They invest in fixed income assets, such as government bonds, corporate bonds, treasury bills, certificates of deposit, debentures, money-market instruments, etc.

Hybrid mutual funds invest in a combination of equity and debt securities.


Debt mutual funds carry the least amount of risk out of equity, debt, and hybrid funds. However, they are not entirely free of risk. They do carry some credit risk and interest rate risk.

Hybrid mutual funds may carry comparatively more risk depending on their composition. A fund with more equity can be riskier compared to a fund that is more concentrated in debt instruments.

Liquidity and investment horizon:

Debt mutual funds like liquid funds can be highly liquid. This is one of the primary reasons why many investors use them to fulfill their short-term goals.

Hybrid mutual funds may not be as liquid as they carry equity holdings. For this reason, they can be ideal for medium to long-term goals.


Debt mutual funds are taxed as per short-term capital gains and long-term capital gains tax. Funds that have been held for less than 3 years are taxed as short-term capital gains. These are added to your annual income and taxed as per the prevailing income tax slab rates.

Funds held for more than 3 years are taxed as long-term capital gains at 20% with indexation benefits.

Hybrid mutual funds are taxed as per their asset allocation. Funds that have invested in more than 65% of equities are taxed as equity funds. These levy a short-term capital gains tax of 15% if held for less than a year. If the fund has been held for more than 1 year, a 10% long-term capital gains tax is levied.

If the hybrid fund has 65% or more debt securities, the rules of debt fund taxation are applied.

Which one is better out of the two?

Both the categories of mutual funds offer different benefits. Debt funds can be good to evade risk. They are also highly liquid. Hybrid mutual funds, on the other hand, can be better for diversification. They can also offer more returns as they invest in equity in comparison but can add more risk too. 

To sum it up

The Tata Capital Moneyfy App offers both hybrid and debt mutual funds that you can invest in as per your risk appetite. The app makes investing easy and safe and provides you with the best investing options in the market. You can choose a combination of equity, debt, and hybrid mutual funds and build a profitable investment portfolio on the Moneyfy App. 

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