A mutual fund that is well diversified among two asset classes or more, particularly debt and equity instruments/ investments (e.g., bonds and stocks). Typically, hybrid funds hold to the same asset allocation of asset classes over extended periods. For example, a hybrid fund may allocate its assets among stocks and bonds in the tune of 70% and 30%, respectively. Stocks or equity in general provide underpinnings for capital growth and higher-than-usual rate of return, while bonds are meant to provide a stable, fixed rate of return, as a cushion against unfavorable equity performance.

Hence, a hybrid fund usually aims to strike a balance between growth and income, providing a mixture of safety, income, and a level of capital appreciation or growth (or at least, capital protection).

A hybrid fund is also known as a balanced fund.