Hybrid Mutual Funds in India - NRI Investment Guide

You're an NRI living in the UAE. You've worked hard to build your savings. Now you want those savings to work harder for you back in India.

You've heard about equity funds (too risky?) and debt funds (too safe?). Then someone mentions hybrid mutual funds - the "best of both worlds."

But questions flood your mind: How are they taxed? Can I bring the money back? Which account do I use? Is this really safer than putting everything in equities?

We've spent over a decade helping NRIs like you navigate these exact questions at Belong. Our team built Belong because we saw how confused and overwhelmed NRIs felt about Indian investments.

This guide answers every question you have about hybrid mutual funds. By the end, you'll know exactly whether they're right for you, how to invest, and how to maximize your returns while staying tax-efficient.

What Are Hybrid Mutual Funds?

A hybrid mutual fund combines two or more asset classes in one portfolio. Most commonly, it mixes equity (stocks) and debt (bonds) investments.

Think of it as having both a growth engine and a safety cushion in the same vehicle.

Here's how it works: The fund manager divides your money between stocks and fixed-income securities. When markets rise, your equity portion captures gains. When markets fall, your debt portion provides stability and generates steady interest income.

The Securities and Exchange Board of India (SEBI) mandates specific allocation rules for each hybrid fund category. This ensures you know exactly what you're buying.

👉 Tip: Hybrid funds are professionally managed, so you don't need to time the market or constantly rebalance your portfolio yourself.

Why NRIs Choose Hybrid Mutual Funds Over Pure Equity or Debt

Many NRIs struggle with a common dilemma. Pure equity funds can give 12-15% returns over the long term, but they're volatile. Pure debt funds offer stability but barely beat inflation at 6-7% returns.

Hybrid funds sit right in the middle. You get equity's growth potential with debt's downside protection.

For NRIs, this balance matters even more because:

Currency risk adds to market risk. When you invest from abroad, you're exposed to both INR-USD exchange rate fluctuations and market volatility. Hybrid funds reduce total portfolio volatility.

Limited ability to monitor daily. If you're in Dubai, you can't watch Indian markets during trading hours. A hybrid fund's automatic rebalancing takes care of this for you.

Goal-based planning works better. Maybe you want to buy property in India in 5-7 years, or fund your child's education in 10 years. Hybrid funds match medium-term goals better than aggressive equity funds.

According to Value Research, aggressive hybrid funds have delivered 12-14% annualized returns over 5 years, with significantly lower volatility than pure equity funds.

Types of Hybrid Mutual Funds You Can Choose From

SEBI classifies hybrid funds into six main categories. Each serves different risk appetites and investment goals.

1. Aggressive Hybrid Funds

These allocate 65-80% to equity and 20-35% to debt.

They target higher growth while maintaining some stability. The high equity allocation also gives you favorable tax treatment (more on this later).

Best for: NRIs with 5+ year investment horizons who can handle moderate volatility.

Example funds: ICICI Prudential Equity & Debt Fund, JM Aggressive Hybrid Fund (which delivered 22.5% annualized returns over 5 years as per Groww data).

2. Balanced Advantage Funds (Dynamic Asset Allocation)

These funds don't follow a fixed equity-debt ratio. Instead, the fund manager actively shifts between equity and debt based on market valuations.

When stocks are expensive, they move to debt. When stocks are cheap, they buy more equity. This dynamic approach aims to protect capital during market crashes while capturing upside during rallies.

Best for: Hands-off investors who want professionals to make tactical calls.

Example funds: HDFC Balanced Advantage Fund, ICICI Prudential Balanced Advantage Fund.

👉 Tip: Balanced advantage funds work especially well for NRIs because they automatically reduce equity exposure before market corrections, protecting your wealth even when you're asleep in Dubai.

3. Conservative Hybrid Funds

These allocate only 10-25% to equity and 75-90% to debt.

They prioritize capital preservation over aggressive growth. You get slightly better returns than pure debt funds, with minimal equity exposure.

Best for: Risk-averse NRIs close to retirement or those saving for near-term goals (2-4 years).

4. Multi-Asset Allocation Funds

These invest across three or more asset classes: equity, debt, gold, and sometimes even international stocks or REITs.

By adding gold and commodities, these funds provide inflation protection and reduce correlation risk.

Best for: NRIs seeking maximum diversification in a single fund.

5. Equity Savings Funds

These combine equity, debt, and arbitrage opportunities. They typically maintain 30-35% direct equity exposure.

The arbitrage component (buying in cash market, selling in futures) generates low-risk returns while keeping the overall portfolio stable.

Best for: Conservative investors who still want some equity exposure for tax benefits.

6. Arbitrage Funds

These are low-risk funds that exploit price differences between cash and derivatives markets.

They're taxed like equity funds but behave like liquid funds. Many NRIs use them as a tax-efficient alternative to savings accounts for short-term parking of funds.

Best for: Short-term parking (3-12 months) with better tax efficiency than debt funds.

Also Read - Types of Mutual Funds

How Hybrid Funds Compare to Other NRI Investment Options

Let's put hybrid funds in perspective against other popular choices:

As you can see, hybrid funds occupy a sweet spot between safety and growth.

They give you better returns than fixed deposits while being less volatile than pure equity. Plus, if the fund holds 65%+ in equity, you get equity taxation benefits.

Understanding Tax Treatment for NRIs in Hybrid Mutual Funds

This is where many NRIs get confused. But once you understand the rules, it's quite straightforward.

The key factor: Is your fund equity-oriented or debt-oriented?

For Equity-Oriented Hybrid Funds (≥65% in equity):

Short-term capital gains (STCG): If you sell within 12 months, you pay 20% tax (updated in Budget 2024, previously 15%).

Long-term capital gains (LTCG): If you hold for more than 12 months, you pay 12.5% tax on gains above ₹1.25 lakh per financial year.

Example: You invested ₹10 lakh in an aggressive hybrid fund. After 18 months, you redeem it for ₹13 lakh (₹3 lakh gain).

• First ₹1.25 lakh gain: Tax-free
• Remaining ₹1.75 lakh gain: Taxed at 12.5% = ₹21,875 tax

For Debt-Oriented Hybrid Funds (\<65% in equity):

All gains are taxed as per your income tax slab rate, regardless of holding period.

For NRIs, TDS is deducted at 30% on redemption (as per Income Tax Act Section 195).

You can claim a refund when filing your Income Tax Return for NRIs if your actual tax liability is lower.

👉 Tip: Choose equity-oriented hybrid funds for better tax treatment. The 12.5% LTCG rate is far better than the 30% slab rate applied to debt-oriented funds.

DTAA Benefits: How to Avoid Paying Tax Twice

India has signed Double Taxation Avoidance Agreements (DTAA) with 90+ countries, including the UAE, USA, UK, Canada, and Singapore.

Here's what DTAA does: When you pay capital gains tax in India, you can claim a Foreign Tax Credit (FTC) in your country of residence. This prevents you from being taxed twice on the same income.

For UAE residents, this is especially beneficial: The India-UAE DTAA specifies that capital gains from mutual funds are taxable only in India. Since the UAE has 0% personal income tax, you pay tax only once in India and nothing in the UAE.

How to claim DTAA benefits:

1. Obtain a Tax Residency Certificate (TRC) from UAE authorities
2. Submit it to your mutual fund house or broker in India
3. Submit Form 10F along with TRC
4. This may reduce your TDS rate or allow you to claim a refund

According to ICICI Bank NRI Banking guidelines, NRIs should keep their TRC updated annually to ensure smooth tax processing.

NRE vs NRO Account: Which One Should You Use to Invest?

This is one of the most common questions we get at Belong.

You can invest in mutual funds through either an NRE or NRO account. But the choice affects your tax treatment and repatriation rights.

Investing via NRE Account:

Benefits:

• Interest earned on the account is tax-free
• Full repatriation allowed (you can bring back both principal and gains without limit)
• Better for foreign-earned income

Limitations:

• You cannot deposit India-sourced income (like rent) into an NRE account
• Your NRE account must comply with FEMA regulations

Investing via NRO Account:

Benefits:

• Can hold India-sourced income
• No restrictions on deposits
• Works for rent, dividends, pension received in India

Limitations:

• Interest earned is taxable in India
• Repatriation limited to USD 1 million per financial year (April-March)
• Requires RBI approval for amounts above the limit

Our recommendation: If you're investing fresh foreign income from your UAE salary, use your NRE account. This keeps everything fully repatriable and tax-efficient.

If you're investing rent or other India-sourced income, use your NRO account. Just be aware of the USD 1 million annual repatriation cap.

👉 Tip: If you're planning to return to India eventually, an NRO account makes more sense since you won't need to repatriate everything. For those staying abroad long-term, prioritize the NRE route.

Repatriation Rules You Must Know

Repatriation means bringing your investment money back to your country of residence.

For investments via NRE account: Fully repatriable with no limits. You can sell your mutual fund units and transfer the entire proceeds abroad at any time.

For investments via NRO account: You can repatriate up to USD 1 million per financial year. This includes:

• Principal amount invested
• Capital gains
• Dividends received

The USD 1 million limit is cumulative across all your NRO accounts. It includes FD closures, mutual fund redemptions, property sales, and any other NRO transactions.

Required documents for repatriation:

• Form 15CA and 15CB (for amounts above ₹5 lakh)
• CA certification
• Proof of tax payment
• Bank statement showing source of funds

Your bank will verify FEMA compliance before processing repatriation. The process typically takes 2-5 business days.

According to RBI regulations updated in 2024, all repatriation transactions are reported to the tax department, so maintain proper documentation.

Step-by-Step: How to Invest in Hybrid Mutual Funds from UAE

Let's walk through the exact process.

Step 1: Update Your Residential Status

If you've recently moved abroad, inform your bank and update your status to NRI. Your existing savings account will be converted to an NRO account. You'll need to open an NRE account separately.

Step 2: Complete KYC Compliance

You need to complete fresh KYC as an NRI. This involves:

• Proof of identity (passport)
• Proof of address abroad (Emirates ID, residence visa, utility bill)
• PAN card
• Overseas bank account statement
• Visa/work permit copy

Many banks now offer video KYC, making it convenient to complete from Dubai. ICICI Bank, HDFC Bank, and Axis Bank have strong NRI KYC processes.

Step 3: Choose Your Investment Platform

You can invest through:

• Your bank's wealth management portal
• Online platforms like Groww, ET Money, or Zerodha Coin
• Direct mutual fund company websites
• A financial advisor or distributor

Most NRIs prefer online platforms for convenience. Make sure the platform accepts NRI investors (some restrictions apply for US and Canada residents due to FATCA compliance).

Step 4: Link Your Bank Account

Link your NRE or NRO account to your investment platform. The platform will send a small test deposit to verify the account.

Step 5: Select Your Hybrid Fund

Research funds based on:

• Performance track record (3-5 years)
• Fund manager experience
• Expense ratio (lower is better, ideally below 1%)
• Assets Under Management (AUM)
• Risk metrics

Step 6: Decide Lump Sum or SIP

Lump sum: Invest the entire amount at once. Good if you have a large sum and markets are attractive.

SIP (Systematic Investment Plan): Invest a fixed amount monthly. This averages out your buying cost and reduces timing risk. Most NRIs prefer SIP for rupee-cost averaging.

Minimum SIP amounts are typically ₹500-1,000 per month. Minimum lump sums range from ₹1,000-5,000.

Step 7: Set Up Payments

For SIP, set up an auto-debit mandate from your Indian bank account. This ensures timely investments without manual intervention.

For lump sum, you can transfer funds via NEFT, RTGS, or UPI.

Step 8: Track and Rebalance

Review your portfolio every 6-12 months. Check if the fund is meeting expectations. Rebalance if needed based on changing goals or market conditions.

👉 Tip: Don't check your investments daily. Hybrid funds work best when held for 3-5+ years. Short-term volatility is normal and doesn't require action.

Top Hybrid Mutual Funds for NRIs in 2025

Based on consistent performance, strong management, and NRI suitability, here are funds worth considering:

Note: Past performance doesn't guarantee future results. These are suggestions, not recommendations. Always assess based on your risk profile and goals.

👉 Tip: Diversify across 2-3 hybrid funds from different fund houses rather than putting all your money in one fund. This reduces concentration risk.

Common Mistakes NRIs Make When Investing in Hybrid Funds

We've seen thousands of NRIs invest over the years. Here are mistakes to avoid:

1. Not Updating Residential Status

Many NRIs continue using their old resident savings account. This creates compliance issues and tax complications later. Always convert to NRE/NRO accounts when you become an NRI.

2. Ignoring Tax Implications

Some NRIs assume mutual fund gains are tax-free like NRE FD interest. They're not. Understand the tax treatment before investing. Factor in TDS deductions.

3. Chasing Recent High Returns

A fund that gave 30% returns last year may not repeat that performance. Look at 3-5 year track records and consistency, not just recent spikes.

4. Choosing Debt-Oriented Funds by Mistake

Debt-oriented hybrid funds are taxed at your slab rate (30% for NRIs). Always check if the fund is equity-oriented (≥65% in equity) for better tax treatment.

5. Not Planning Repatriation Needs

If you're investing via NRO and accumulate more than USD 1 million across all accounts, repatriation becomes complicated. Plan ahead. Use NRE for amounts you'll definitely repatriate.

6. Panic Selling During Market Corrections

Hybrid funds are designed for 3-5+ year horizons. A 10-15% market correction is normal. Don't sell in panic. Let the fund manager rebalance and recover.

According to SEBI investor education materials, retail investors who stayed invested through corrections saw average returns of 11-13% over 5 years, while those who tried to time the market earned significantly less.

Also Read -Best Mutual Funds for NRIs to Invest in India

How Currency Fluctuations Affect Your Returns

This is unique to NRI investors and often overlooked.

Your returns have two components:

1. Mutual fund performance in INR
2. INR-USD exchange rate movement

Example scenario:

You invest ₹10 lakh when 1 USD = ₹82 (approximately $12,195).

After 3 years, your investment grows to ₹13 lakh (30% return in INR terms).

But:

Scenario A - Rupee depreciates: If 1 USD = ₹88 at redemption, your $12,195 becomes $14,773 (21% return in USD terms). You've lost some gains due to stronger dollar.

Scenario B - Rupee appreciates: If 1 USD = ₹76 at redemption, your $12,195 becomes $17,105 (40% return in USD terms). Currency movement added to your returns.

The rupee has historically depreciated against the dollar. Over the past 10 years, the rupee has weakened from ₹60 to ₹83 per dollar - an average depreciation of about 3% annually.

This actually works in favor of NRIs holding INR investments. When you convert back to dollars, you get more dollars due to rupee depreciation.

But there's a solution if you want to avoid currency risk entirely: GIFT City USD fixed deposits through Belong are denominated in dollars, eliminating currency risk completely. You earn 4-5% in USD with zero tax and full repatriation.

Compare this with your hybrid fund's expected 11-13% INR returns. After adjusting for 3% annual rupee depreciation, your dollar returns are similar - but with lower volatility in the GIFT City FD option.

👉 Tip: Use our Rupee vs Dollar Tracker to monitor currency trends and understand how they affect your investment returns.

When Should You Choose Hybrid Funds Over Other Options?

Hybrid funds aren't always the best choice. Here's when they make the most sense:

Choose hybrid funds if:

• You have a 3-7 year investment horizon
• You want equity exposure but can't handle pure equity volatility
• You don't want to actively manage asset allocation
• You're saving for medium-term goals (property down payment, education, wedding)
• You want better returns than FDs but lower risk than equity funds

Skip hybrid funds if:

• You have a very long horizon (10+ years) and high risk appetite - pure equity funds will likely give better returns
• You need guaranteed returns - FDs or bonds are better
• You have less than 3 years before you need the money - stick to debt funds or FDs
• You're highly risk-averse - conservative NRE FDs or GIFT City FDs are safer choices

A balanced portfolio approach:

Many financial advisors suggest a mix:

• 40% in GIFT City USD FDs (safety, dollar-denominated)
• 30% in hybrid mutual funds (balanced growth)
• 30% in pure equity funds (long-term wealth creation)

This gives you safety, moderate growth, and high growth potential - all in one portfolio.

How Belong Can Help You Invest Smarter

At Belong, we've built tools and products specifically for NRIs like you.

1. GIFT City USD Fixed Deposits

Earn 4-5% returns in USD with:

• Zero tax (exempt under IFSC regulations)
• Full repatriation (no limits)
• Dollar-denominated (no currency risk)
• DICGC insurance up to $100,000

2. NRI FD Rate Comparison Tool

Compare NRI FD rates across NRE, NRO, FCNR, and GIFT City FDs from top banks - all in one place.

3. Residential Status Calculator

Not sure if you're an NRI, RNOR, or Resident for tax purposes? Use our Residential Status Calculator to find out in 2 minutes.

4. Compliance Compass

Check if you're following all necessary rules across banking, investments, and taxation with our Compliance Compass tool.

5. Expert Guidance

Our team has helped over 10,000 NRIs optimize their India investments. We understand your unique challenges - currency risk, repatriation worries, tax complexity, and limited time to monitor investments.

But here's what matters most:

You're not just getting financial products. You're joining a community of NRIs who share your challenges, questions, and goals.

Join Our Community of 5,000+ NRIs

We've built a vibrant WhatsApp community where NRIs help each other with:

• Investment advice and experiences
• Tax filing tips
• Real estate guidance
• Banking and compliance questions
• Latest regulatory updates

You're welcome to join us. No spam, just valuable discussions and expert guidance when you need it.

Conclusion: Are Hybrid Mutual Funds Right for You?

Hybrid mutual funds offer NRIs a practical middle path between aggressive equity funds and conservative debt funds.

They work best when:

• You have 3-7 year investment horizons
• You want equity returns with lower volatility
• You prefer hands-off, professional management
• You're investing for medium-term goals

Key takeaways to remember:

• Choose equity-oriented hybrid funds (≥65% equity) for better tax treatment at 12.5% LTCG
• Invest via NRE account for full repatriation rights
• Use SIPs to average out market volatility
• Consider currency risk when calculating expected returns
• Claim DTAA benefits to avoid double taxation
• Don't panic-sell during corrections - hybrid funds need 3-5 years to perform

The bottom line: If you're comfortable with moderate risk and don't need guaranteed returns, hybrid mutual funds can be an excellent addition to your NRI portfolio. They've historically delivered 10-14% returns with far less volatility than pure equity funds.

But remember - investing isn't one-size-fits-all. Your choice should depend on your specific goals, risk appetite, timeline, and financial situation.

Ready to get started? Download the Belong App to explore GIFT City FDs, compare NRI FD rates, and access our full suite of tools built specifically for NRI investors.

Or join our WhatsApp Community to ask questions, share experiences, and learn from fellow NRIs who've been exactly where you are now.

Disclaimer: This article is for educational purposes only and does not constitute financial advice. Mutual fund investments are subject to market risks. Please read all scheme-related documents carefully before investing. Consult a SEBI-registered investment advisor for personalized guidance based on your financial situation.

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• Best NRI Fixed Deposits: NRE vs NRO vs FCNR vs GIFT City FDs Compared
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