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Through previous articles, we explained to you the concepts of Equity Funds and Debt Funds. We told that investors who wish to invest in the short-term can invest in debt funds and investors who wish to invest in long-term goals, can invest in Equity Fund.
Today, we are introducing you with one more amazing and efficient, mutual fund, Hybrid Fund. There are some investors, who want to get benefits and the best of both, equity and debt fund, these investors focus their investment in Hybrid Funds.
Read this blog, and get to everything about the Hybrid Fund, this will help you decide your investment in Hybrid Funds.
What are Hybrid Funds?
Hybrid funds are another type of Mutual Funds, that aims to obtain the benefits of both Equity and Debt Funds. Hybrid funds are popular as a perfect blend of both equities and debt funds! These kinds of funds invest in both, debt instruments and equities to achieve maximum diversification and assured returns.
Hybrid funds approach to raise wealth appreciation, in the long run and focus to generate income in the short-term, through a balanced portfolio.
Features of Hybrid Funds
- Diversification: Hybrid funds, invest in both Equity Funds (Growth Funds) and Debt Funds (Bond Funds), in order to give maximum diversification to investors portfolio, and with the same, maximum returns on investment.
- Portfolio Balancing: Hybrid funds (prominently Balance funds) provide automatic portfolio balancing. This feature of hybrid fund benefits its investors, when the market is volatile, as when the market goes high, the fund manager automatically, invests in equities to mainta8in the high-level and vice-versa.
- Tax Benefits: Hybrid funds invest in both Equity and Debt Instruments, so taxation is done accordingly.
- Equity component Taxation: The equity component of hybrid funds is taxed like Equity funds. Long-Term Capital gains, more than Rs 1 lakh are taxed at the rate of 10%. Short-term capital gains are taxed at a rate of 15%.
- Debt Component Taxation: The debt component of hybrid funds is taxed like debt funds. Short-term capital gains, from debt component, form part of the total income of the investor and is taxable according to his income slab. Long-term capital gains are taxable at the rate of 20% with the benefit of indexation, and at 10% without the benefit of indexation.
- Avails the option of Lump-Sum and SIP investment: Investors can either invest via SIP or Lump-sum in hybrid funds as per their comfortability.
Types of Hybrid Funds
Hybrid funds are classified into further sub-categories, that avails a good diversifying facility to its investors. These funds are classified on the basis asset allocation. Let’s have a look at its sub-categories.
- Equity-oriented hybrid funds: As the name defines, it is a kind of Hybrid fund, that invests its 65% of funds, inequities and the remaining 35% in debt instruments.
- Debt-oriented balanced: As the name defines, this kind of Hybrid Funds invests more than 65% in debt securities and the remaining percentage in equities.
- Balanced Funds: This kind of hybrid fund, invest at least 65% of their portfolio in equity and equity-oriented instruments, this helps them to qualify as equity funds for taxation, gains over and above Rs 1 lakh from balanced funds held for over one year are taxable at the rate of 10%.
- Arbitrage Funds: This kind of Hybrid fund, aims to take advantage of altering prices of securities in the market. In this, the fund manager approach to maximize returns by buying the stock at a lower price in one market then sells it at a higher price in another market.
- Monthly Income Plans: This Hybrid fund predominantly, invest in debt instrument. There is generally only 15-20% exposure to equities, in this hybrid fund.
Benefits of Hybrid Funds
- These funds are less volatile and avail the best of both, the equity and debts. They aim to generate returns from equity components, and stability through the debt component.
- The feature of these funds to diversify their asset allocation, gives a low risk to the investor, on its investment, and with the same, their investment gives high returns.
- These funds do provide tax benefits. Balanced funds, being equity-focused, the investment can be exempted from long-term capital gains tax. In the case of Debt funds, when the lock-in period is beyond 3 years, the debt funds provide indexation benefits.
Who Should Invest in Hybrid Funds?
Hybrid Funds aims to attain the benefits, from both equity component and debt component, are also less risky, and give good returns. However, the returns are affected by market fluctuations.
As per professional, Hybrid funds are best suited to investments of conservative investors, as a hybrid fund provides a stable portfolio of stocks as well as exposure to fixed income instruments. It is considered the best investment for intermediate financial goals like buying a car or funding higher education, at the same time, it is also a good investment option for retirees, where an investor can go for a dividend option and fulfill their post-retirement income.
Most importantly, always consult a financial planner or advisor, before starting your investments. They will help you select the best mutual fund, for your investments as per your requirement.
As of now, you are aware of the concept of Hybrid funds and its benefits, plan your investment in Hybrid funds, and get the best returns from both Equity and Debt Funds.
You can also contact us at Shri Ashutosh Securities Pvt Ltd., we are here to help you in any way possible.
Best Hybrid funds which have performed well in the past 3 years –
Balanced Fund Name
ICICI Prudential Equity and Debt Fund – Direct Plan-Growth
Mirae Asset Hybrid – Equity – Growth Aggressive Hybrid Fund
Principal Hybrid Equity Fund – Growth Aggressive Hybrid Fund
SBI Equity Hybrid Fund – Regular Plan-Growth Aggressive Hybrid Fund
(Mutual Fund investments are subject to market risk Illustrations are for example only, there is no guarantee of returns. Past performance is not an indicator/guarantee to future returns).