Equity vs Debt vs Hybrid Funds – What is the Difference?

Are you confused between Equity, Debt, and Hybrid funds? Of course, you are! That is why you are here! No worries, in this differentiating guide, we will discuss the fundamental differences between these three.

Additionally, we will also discuss some other doubts that can arise in your mind. First of all, we need to understand the meaning of all three. This will assist you in understanding the differences among them better.

What are Equity Mutual Funds?

Equity funds are mutual funds that invest in a basket of equity securities (shares of companies). These funds are regarded as high-risk, high-reward funds because they hold the potential to generate higher returns, but they also come with higher levels of risk.

These funds are suitable for investors who are ready to tolerate more risk and volatility and have long-term investment goals.

Equity funds are further categorised based on the size of the companies. Such as

  1. Large Cap Funds
  2. Medium Cap Funds
  3. Small Cap Funds
  4. Multi Cap Funds
  5. Flexi Cap Funds

[Further, Read: Types of Mutual Funds]

What are Debt Mutual Funds?

Debt Mutual funds are considered low-risk, low-reward investments. This is because they invest in debt-related securities such as bonds, treasury bills, government securities and other debt instruments etc. promising a fixed income but lower returns.

These funds are best for investors who are sensitive to volatility and have a low-risk appetite. They provide the investors with a regular income and safety of capital.

While these funds are considered less risky than equity funds, they may still be subject to interest rate risk and credit risk. Some Examples of debt mutual funds are:

  1. Money Market or Liquid Funds
  2. Fixed Maturity Plan Funds (FMPs)
  3. Corporate Bond Funds
  4. Government Bond Funds
  5. Credit Risk Funds
  6. Dynamic Bond Funds

What are Hybrid Mutual Funds?

Hybrid mutual funds are also known as balanced mutual funds because they invest in a mix of equity and debt instruments. These funds aim to strike a balance between risks and returns.

These funds are best suitable for investors who wish to take moderate risks while participating in equity markets.

Further Reads:

  1. Guide to Choose the Best Fit Mutual Fund for You
  2. What are SIP Investments in Mutual Funds

Difference Between Equity, Debt and Hybrid Funds

FeatureEquity fundsDebt fundsHybrid funds
ObjectiveCapital appreciation over the long termRegular income and safety of capitalBalance between risks and returns
Risk LevelHigher risk due to the volatility in stock pricesLower risk but still subject to interest rate risk and credit riskModerate risk due to exposure to both equity and debt instruments
Return PotentialPotentially higher returns in the long termLower returns than equity funds but more stableModerate returns, balancing both equity and debt
Time horizonLong-term investment horizonShort to medium-term investment horizonMedium-term investment horizon
Best ForInvestors with a high-risk appetite and long-term investment horizonConservative investors seeking regular incomeInvestors seeking a balanced portfolio
Asset ClassStocks of companiesDebt securities such as bonds and government securitiesBoth equity and debt instruments

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Courtesy: ET Money YouTube Channel


  1. Equity vs. Debt vs. Hybrid fund- which is best?

    Different types of mutual funds come with their own pros and cons. No fund is best for all investors. Each individual investor should choose a fund based on his risk appetite, investment goals and time horizon.

  2. Are Debt Mutual Funds better for the short term?

    Yes, They can be better for investors who have short-term investment goals. It is to be noted that they can generate steady income while simultaneously offering the possibility of growth in capital over the long term.

A commerce graduate turned a digital creator to follow his passion for writing and sharing useful & well-researched information that adds some value to people's lives.

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