Hi Neha! I'll try to make this answer a little easier by giving you a real-life example.

Imagine you have just stepped out of a movie and are famished. So, you head to the nearest food court and order a combo meal for yourself. Why a combo meal? Because it gives you more options for more-or-less the similar amount you would’ve paid for one dish.

Hybrid funds, or hybrid schemes, are exactly that! A mutual fund which invests in more than one asset class.

The Indian Mutual Fund industry allows for equity-debt, debt-gold, as well as equity, debt and gold hybrid funds. However, it is the equity-debt hybrid fund that has gained popularity in the recent few months.

The concept of hybrid funds has evolved over time to cater to the varying risk tolerance levels of investors that range from conservative to moderate to aggressive. Based on whether an investor wants to invest more in debt or equity, mutual funds are debt-oriented (65% in debt, 35% in equity) or equity oriented (65% in equity and 35% in debt).

These days, a new type of hybrid fund is gaining prominence- the dynamic asset allocation funds. These are funds that do not have a fixed allocation for equity and debt. The fund manager of these funds allocates funds to equity and debt based on the current market indicators. This is very important as the asset allocation is dynamic to suit the current market situation.

For a beginner, investing in a hybrid fund is ideal as the investor gets the best of both the worlds and can thus make the most of the opportunity that both the asset classes hold for him/her.