Hybrid funds vs Balanced advantage funds - Which is better?

Although similar, hybrid mutual funds and balanced advantage funds are distinct in several aspects and have varying properties. In this blog, we will compare these two funds in more detail to help you choose the best one as per your specific needs. 

What are Hybrid Funds?

Hybrid mutual funds or balanced funds are the types of funds that allow you to diversify your portfolio to take advantage of both equity and debt funds. It consists of a debt component and an equity component.

Some of the features of hybrid or balanced funds include –

  • Hybrid or balanced funds allow you to invest some of your asset portfolios in equity to take advantage of the excellent returns based on the prevailing market scenario. The remaining can be invested in debt funds to balance the risk that accompanies equity funds.
  • In the case of the best hybrid funds, the fund portfolio can be altered as per the fluctuations in the financial market.
  • In comparison to pure equity mutual funds, hybrid funds are less riskier because the risk exposure gets divided between the two types of funds. 
  • Top hybrid funds are not similar to traditional funds as they work as per the asset allocation model set at the beginning of the fund and generate higher returns when the market performs well.

Balanced Advantage Funds

Balanced advantage funds are the funds that invest in both equities and debt. The asset allocation need not be fixed, and the same can be changed based on the stock market.

Some of the features of balanced advantage funds include –

  • Actively managed funds with a diversified portfolio.
  • The asset allocation strategy in a balanced advantage fund is decided beforehand, but adjustments are made to maximize returns.
  • The fund allocation in the balanced advantage fund is maintained in a way that equity and debt shares are well balanced as per the existing market conditions. 
  • The losses in the case of balanced advantage funds are minimum as the fund automatically adjusts its strategy and allocation of funds depending on the changes in the market. 

The Difference between a Hybrid Fund and a Balanced Advantage Fund

The key differences between these two types of funds include –

a. Hybrid funds invest in equity and debt as per the predetermined allocation rules, whereas balanced advantage funds strategies their asset allocation based on market fluctuations. 

b. Hybrid mutual funds or balanced funds primarily work towards offering long-term growth to the investors. On the contrary, balanced advantage funds aim to offer risk-adjusted investment growth.

c. While hybrid funds allocate up to 60% of their assets in equity and the remaining in debt, balanced advantage funds allocate up to 80% of their total assets in equity and the remaining in debt securities.

d. Unlike balanced advantage funds that aim to give the advantage of arbitrage to investors, hybrid funds aim to offer the benefit of high returns in the long-term for investors. 

To Conclude

When choosing the type of fund to invest in, two of the most important deciding factors are the cost of investment and the respective financial goal. Since both of these fund types have different features, the investors need to know and understand how the two funds work beforehand.  To make the decision easier, you can start your thought process of whether to go with a pure debt fund or a mix of debt and equity funds. Whatever you decide, it is important to park your money in a fund aligned with your specific investment goals. You can also visit PGIM to pick top hybrid funds and the best-balanced advantage funds and diversify your portfolio according to your financial goals.

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