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New hybrid mutual fund classification rules 2026: Key things investors must know
5 min read | Updated on February 27, 2026, 13:31 IST
SUMMARY
Hybrid funds continue to be classified into Conservative, Balanced, Aggressive, Dynamic Asset Allocation, Multi-Asset Allocation, Arbitrage, and Equity Savings funds.
The markets regulator SEBI on February 26, came out with a revamped framework for the classification of mutual fund schemes. | Image: Shutterstock.
Core categories retained
Hybrid funds continue to be classified into Conservative, Balanced, Aggressive, Dynamic Asset Allocation, Multi-Asset Allocation, Arbitrage, and Equity Savings funds.
Conservative, Balanced, and Aggressive funds maintain their equity-debt bands: 10–25%, 40–60%, and 65–80% in equity, respectively.
Balanced Hybrid Funds cannot use arbitrage, and Dynamic Asset Allocation funds invest only in equity and debt instruments.
2026 Sebi hybrid fund rules
| Sr. No. | Category of Scheme | Scheme Characteristics | Type of Scheme (Uniform Description) |
|---|---|---|---|
| 1 | Conservative Hybrid Fund | Equity & equity-related instruments: 10–25% of total assets; Debt instruments: 75–90% of total assets | Open-ended hybrid scheme investing predominantly in debt instruments |
| 2 | Balanced Hybrid Fund | Equity & equity-related instruments: 40–60% of total assets; Debt instruments: 40–60% of total assets; No arbitrage permitted | Open-ended balanced scheme investing only in equity and debt instruments. No arbitrage permitted |
| 3 | Aggressive Hybrid Fund | Equity & equity-related instruments: 65–80% of total assets; Debt instruments: 20–35% of total assets | Open-ended hybrid scheme investing predominantly in equity and equity-related instruments |
| 4 | Dynamic Asset Allocation Fund | Investment in equity/debt managed dynamically | Open-ended dynamic asset allocation fund investing only in debt and equity instruments |
| 5 | Multi Asset Allocation Fund | Invests in at least three asset classes with a minimum allocation of 10% each in all three asset classes | Open-ended scheme investing in multiple asset classes (equity, debt, others) |
| 6 | Arbitrage Fund | Follows arbitrage strategy; Minimum 65% in equity & equity-related instruments; Debt exposure limited to govt. securities <1 year and repos; No InvITs | Open-ended scheme investing in arbitrage opportunities |
| 7 | Equity Savings Fund | Minimum 65% in equity & equity-related instruments; Net equity exposure 15–40%; Minimum debt 10%; Max arbitrage exposure & hedged/unhedged exposure to be disclosed | Open-ended scheme investing in equity, arbitrage, and debt; asset allocation under defensive considerations may be stated |
Stricter rules for Arbitrage and Equity Savings Funds
Arbitrage funds now have tightened debt exposure limits, restricted to government securities with maturity under one year and repos of government bonds, and cannot invest in InvITs. Equity Savings funds must disclose net equity exposure (15-40%), maximum arbitrage, and hedged/unhedged exposures in the scheme information document (SID).
Expanded investment options
A notable addition in 2026 is that hybrid schemes (except arbitrage funds) can invest residual portions in InvITs, ETCDs, Gold ETFs, and Silver ETFs, providing diversification options.
2024 vs 2026 hybrid fund comparison: What investors need to know
| Sr. No. | Category of Scheme | 2024 Sebi Circular | 2026 Sebi Circular | Key Change / Impact |
|---|---|---|---|---|
| 1 | Conservative Hybrid Fund | Equity 10–25%; Debt 75–90% | Same | No change |
| 2 | Balanced Hybrid Fund | Equity 40–60%; Debt 40–60%; No arbitrage implied | Equity 40–60%; Debt 40–60%; No arbitrage explicitly stated | Clearer rule: arbitrage not permitted |
| 3 | Aggressive Hybrid Fund | Equity 65–80%; Debt 20–35% | Same | No change |
| 4 | Dynamic Asset Allocation / Balanced Advantage | Equity/Debt managed dynamically | Equity/Debt managed dynamically; only equity and debt allowed | Limits exposure to other instruments |
| 5 | Multi Asset Allocation Fund | Invests in ≥3 asset classes; ≥10% in each | Same | No change |
| 6 | Arbitrage Fund | Minimum 65% equity; debt exposure not specified | Minimum 65% equity; debt limited to govt. securities <1 year and repos; no InvITs | Tighter debt limits, no InvITs |
| 7 | Equity Savings Fund | Minimum 65% equity; minimum 10% debt; hedged/unhedged exposure mentioned | Minimum 65% equity; net equity 15–40%; max arbitrage exposure & hedged/unhedged exposure to be disclosed | Enhanced disclosure requirements; formally a distinct category |
| – | Residual Investments | Not specified | Hybrid funds (except arbitrage) may invest residual portion in InvITs, ETCDs, Gold ETFs, Silver ETFs | New flexibility for diversification |
What this means for investors
The revised rules ensure greater clarity, transparency, and comparability across hybrid schemes. Investors can better understand equity-debt mixes, helping them choose funds aligned with their risk profile and financial goals.
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