Hybrid mutual funds are back in focus in 2026 as investors rethink strategy amid volatility, shifting flows and a nearly 10 per cent correction in benchmark indices. March data showed unusual outflows – especially from arbitrage funds but experts say the broader trend remains intact, with hybrid categories gaining traction for stability and disciplined asset allocation. Speaking to Zee Business, Vikas Puri, Senior Partner at Complete Circle Capital, and Kshitij Mahajan, CEO at Complete Circle Wealth, explained how changing risk appetite, liquidity needs and portfolio rebalancing are shaping investor behaviour.

A hybrid fund is a mutual fund that invests across multiple asset classes – mainly equity and debt, and sometimes commodities such as gold and silver. This mix helps balance risk and return by combining growth potential from equities with the relative stability of fixed-income instruments.

The diversification reduces volatility compared to pure equity funds while offering better return potential than traditional debt funds. This makes hybrid funds a middle-ground option for investors seeking both safety and growth.

Hybrid funds are gaining attention as investors navigate uncertain markets and valuation concerns. The recent 10 per cent correction in the Nifty 50, along with global uncertainties and shifting interest rate cycles, has increased demand for diversified investment options.

Experts say investors are now favouring products that can automatically rebalance portfolios and manage downside risk without completely missing equity upside. This has made balanced advantage and multi-asset allocation funds particularly attractive, especially for first-time and moderate-risk investors.

Vikas Puri said the outflows were largely concentrated in arbitrage funds, which are widely used by corporates and treasury desks to park short-term surplus funds.

He explained that quarter-end adjustments and a shift in market sentiment led investors to pull money out of these low-risk strategies. As equity markets showed signs of recovery, some investors moved towards higher-risk opportunities.

Puri stressed that these outflows are temporary in nature and do not indicate a structural decline in hybrid fund demand.

Kshitij Mahajan said the nearly 10 per cent correction in the Nifty 50 between February 28 and March 31 played a key role in investor decisions.

He noted that such corrections lead to mark-to-market adjustments in portfolios, often triggering redemptions. In addition, financial year-end and quarter-end dynamics contributed to withdrawals as institutions adjusted their books.

Mahajan described the correction as a significant phase that influenced allocation strategies across asset classes.

Explaining the structure of hybrid funds, Vikas Puri outlined the main categories:

• Aggressive hybrid funds with 65–80 per cent equity exposure
• Balanced advantage funds with dynamic equity-debt allocation
• Conservative hybrid funds with 75–90 per cent in debt
• Multi-asset allocation funds investing in equity, debt and commodities
• Equity savings funds combining equity, arbitrage and debt

He said each category serves a specific purpose and should be chosen based on individual goals and risk appetite.

Kshitij Mahajan recommended balanced advantage and multi-asset funds for investors who prefer a simpler approach.

He said these funds are ideal for those who do not want to actively track markets, as fund managers handle asset allocation and rebalancing.

According to him, this approach helps investors stay disciplined during volatile phases.

Vikas Puri cautioned against selecting funds based only on recent low volatility.

He advised investors to align investments with their financial goals and time horizons. Hybrid funds can play different roles in a portfolio, depending on how they are used.

Puri said disciplined allocation is more important than reacting to short-term market movements.

Both experts agreed that hybrid funds should form a key part of a diversified portfolio.

Kshitij Mahajan suggested allocating around 15–20 per cent of total investments to hybrid strategies, especially balanced advantage or multi-asset funds.

Vikas Puri added that investors should keep portfolios simple, ideally limiting them to five to seven funds to ensure better tracking and decision-making.