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Novel Fe-based soft magnetic composites (SMCs) with hybrid phosphate-alumina layers were prepared by both sol&#8722;gel and ball-milling methods. The effects of the fabrication methods and the addition of Al₂O₃ particles on the microstructure and the soft magnetic performance of SMCs were studied. The formation of the hybrid phosphate-Al₂O₃ shell not only leads to the decrease of the total core loss, but also results in the reduction of the permeability and saturation magnetization. However, the degree of decrease caused by the different methods were not identical. The sample with 8% Al₂O₃ prepared by the sol&#8722;gel method showed the best magnetic performance, exhibiting a high-amplitude permeability (&#956;_a) of 85.14 and a low total core loss (<i>P</i>s) of 202.3 W/kg at 50 mT and 100 kHz. The hysteresis loss factor and the eddy current loss factor were obtained by loss separation. The results showed that the samples with the same Al₂O₃ content prepared by different methods exhibited almost the same total core loss. However, the contribution of the hysteresis loss and the eddy current loss showed an obvious difference in behavior because of the change of the particle shapes and the refinement of the particle size during the ball-milling process.