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Difference between Equity Debt and Hybrid funds

11 Sep 2023

When it comes to mutual funds, there are various different types to choose from. This includes equity mutual funds, debt mutual funds, and hybrid mutual funds. Each type of mutual fund serves a different purpose and is suitable for different investors. 

Wondering what the difference between equity, debt, and hybrid funds are? This article will help explain what they are. But before we take a look at the differences, let’s first try to get to know about these funds. 

What are equity funds

Equity funds are mutual funds that invest in the stocks of different companies. Equity mutual funds can further be subcategorized into large cap funds, small cap funds, mid-cap funds, and multi-cap funds, based on market capitalization of the companies in the funds.  

What are debt funds

Debt funds are mutual funds that invest in a wide range of debt securities and money market instruments such as commercial papers, debentures, certificates of deposits, treasury bills, and government securities, among others. Again, as with equity funds, there are multiple different subcategories of debt funds such as overnight funds, ultra-short term funds, short-term funds, and long-term funds. 

What are hybrid funds?

Hybrid funds are mutual funds that invest in both equity and the debt market. By investing in both these markets, these funds aim to reduce risk and increase the return that investors get to enjoy. With hybrid funds, there’s no fixed percentage of allocation between the equity and debt market and is dependent on the fund, the manager of the fund, and the goal of the fund.

What is the difference between these three funds? 

Now that you’ve seen what equity, debt, and hybrid funds are, let’s now move onto their differences. 

Equity Funds

Debt Funds 

Hybrid Funds

Invests in the stocks of companies.

Invests in debt securities and money market instruments.

Invests in both equity and debt instruments. 

Returns are fully dependent on the performance of the market. 

Returns are more stable and are not dependent on the performance of the market. 

Returns are partly stable and partly dependent on the performance of the market.

These funds are very risky.

These funds carry low levels of risk. 

These funds carry moderate levels of risk. 

Which fund should you choose?

The type of mutual fund that you would have to choose is dependent on your risk appetite and the time horizon of your goals. For instance, if you’re an aggressive investor with a high risk appetite, you can invest in equity mutual funds. 

On the other hand, if you’re a conservative investor with a low risk appetite, then debt mutual funds may just be what you’re looking for. And finally, if you’re a moderate investor who is ready to take a slightly elevated risk, then hybrid funds may be the one for you. 


As you can see, each of these three mutual funds serve different goals. So, make sure to take your goals and your risk appetite into account, when choosing the fund that you wish to invest in. 

That said, irrespective of the kind of fund that you wish to invest in, you would need to first have a demat and trading account with you. Visit the website of Motilal Oswal to open a demat account online for free within just a few minutes.


Related Articles: How to Open a Demat Account Without a Broker | Factors to Keep in Mind While Opening a Demat account | Factors to Consider When Opening a Demat Account 


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