A hybrid fund is a mutual fund, ETF (Exchange-traded-fund) or other type of investment portfolio that combines two or more asset classes in order to diversify the portfolio's holdings and minimize risk. It is considered a hybrid because it provides a mix of asset classes, such as stocks, bonds, and cash equivalents, as opposed to a single asset class such as stocks.

The goal of a hybrid fund is to have the majority of the assets invested in higher return asset classes, but to also have a portion of the assets in lower risk, more conservative asset classes. This type of fund typically has a lower correlation with the stock market than a fund that only invests in stocks, which makes it a better option for investors who are looking for stability in their portfolio.

Unlike a balanced fund, which typically holds a fixed proportion of stocks and bonds, a hybrid fund may have a more flexible combination of asset classes. Blended funds, for example, which mix growth and value stocks, are another hybrid fund example. These funds tend to be more aggressive in their investments, as they tend to have higher allocations of stocks, but with a higher emphasis on lower-risk investments as well.

It is also possible to create hybrid funds with different asset classes, such as foreign stocks and bonds, commodities, real estate, or even more alternative investments. By choosing multiple types of investments, investors can better diversify their risk, thus reducing the overall volatility of the portfolio.

One of the main advantages of hybrid funds is that they allow investors to customize their portfolio to their individual risk tolerance and investment goals. For example, an investor who is more focused on capital preservation may create a portfolio with a higher allocation of bonds and cash. On the other hand, an investor who is looking for higher returns may create a portfolio with more of an emphasis on stocks and other higher return assets.

Although hybrid funds can provide diversification and lower volatility, they may also come with higher fees than invested in a single asset class. Additionally, since hybrid funds are actively managed, their returns may vary depending on the performance of the fund manager. For these reasons, it is important for investors to carefully review the objectives of each fund and disclose the fees before investing.