Mutual Funds
Hybrid Funds are type of mutual fund schemes that invests in two or more asset classes, also known as asset allocation funds.
Investors can choose to invest in different types of hybrid funds, depending on their risk appetite and financial goals. There is an old saying that one should never put all the eggs in the same basket. The same is applicable for investments also. It is always advised to maintain diversification of investment portfolio across different asset classes like equity, debt, etc. A hybrid mutual fund offers this diversification under the same fund as such funds invest across asset classes. One can choose specific mutual fund scheme after considering their financial goals, investment horizon and risk appetite.
Hybrid Funds
Hybrid funds can be classified into different sub-categories as below
- Conservative Hybrid Fund – Such funds invest 75% to 90% in debt while investing 10% to 25% in equities.
- Balanced Hybrid Fund - Such funds invest 40% to 60% in both equities and debt.
- Aggressive Hybrid Fund - Such funds invest 65% to 80% in equities while investing 20% to 35% in debt.
- Dynamic Asset Allocation or Balanced Advantage Fund – Such funds dynamically manage equity/ debt asset allocation within the investment portfolio depending upon the relative valuations of the asset classes.
- Multi Asset Allocation Fund – Such funds invest in at least three asset classes with minimum 10% allocation in each of these asset classes.
- Arbitrage Fund – Such funds adopt arbitrage strategy for generating returns while maintaining minimum 65% allocation in equities.
- Equity Savings – Such funds invest in equity, debt and arbitrage strategies with minimum 65% allocation to equities and 10% allocation to debt.
Returns from Hybrid funds
The returns on hybrid funds depend upon the performance of the underlying portfolio. However, since investments in such funds is diversified across other asset classes besides equity, these funds are relatively less volatile than pure equity funds. However, the corresponding returns may also be lower due to the same reason.
How to invest in Hybrid Funds?
The process of investing in hybrid funds is the same as that for investing in any other mutual fund category. One can invest in hybrid funds through the website/ mobile application of the mutual fund house or physically submit the application form at official Points of Acceptance (POA).
Taxation of Hybrid Funds
The process of investing in hybThe appreciation in the investment value of debt fund units is taxed at the time of redemption of mutual fund units. The tax rates for gains from hybrid funds depend on the asset allocation of the fund. If the fund has, on an average, held 65% or more of its net assets in equity securities of domestic companies, it can be categorised as equity-oriented fund, else they are categorized as other than equity funds for taxation purposes The gains from equity-oriented funds are taxed at 15% (plus applicable cess and surcharge) if the units are held for less than 12 months, while the tax rate is 10% (plus applicable cess and surcharge) if the units have been held for 12 months or more for gains beyond Rs. 1 lakh in a year. However, in case of other than equity funds, the gains for the units held for less than 36 months are taxed at the regular tax rates as applicable to the taxpayer and for units held for 36 months or more, they are eligible for Long-Term Capital Gains (LTCG) and are taxed at 20% (plus applicable cess and surcharge) after the indexation benefits. Note: The tax provisions mentioned in the article are for illustrative purposes only and are updated as per the Union Budget 2022 presented in the Parliament in February 2022. The tax rates for capital gains will be as per the tax laws applicable on the date of redemption/ sale and not on the investment date.
rid funds is the same as that for investing in any other mutual fund category. One can invest in hybrid funds through the website/ mobile application of the mutual fund house or physically submit the application form at official Points of Acceptance (POA).
Frequently asked questions
Have questions? We are happy to help.
Hybrid funds can be classified into different sub-categories as below:
- Conservative Hybrid Fund – Such funds invest 75% to 90% in debt while investing 10% to 25% in equities.
- Balanced Hybrid Fund - Such funds invest 40% to 60% in both equities and debt.
- Aggressive Hybrid Fund - Such funds invest 65% to 80% in equities while investing 20% to 35% in debt.
- Dynamic Asset Allocation or Balanced Advantage Fund – Such funds dynamically manage equity/ debt asset allocation within the investment portfolio depending upon the relative valuations of the asset classes.
- Multi Asset Allocation Fund – Such funds invest in at least three asset classes with minimum 10% allocation in each of these asset classes.
- Arbitrage Fund – Such funds adopt arbitrage strategy for generating returns while maintaining minimum 65% allocation in equities.
- Equity Savings – Such funds invest in equity, debt and arbitrage strategies with minimum 65% allocation to equities and 10% allocation to debt.
The returns on hybrid funds depend upon the performance of the underlying portfolio. However, since investments in such funds is diversified across other asset classes besides equity, these funds are relatively less volatile than pure equity funds. However, the corresponding returns may also be lower due to the same reason. Past performance is not a guarantee of future returns and may or may not be sustained in the future.
The process of investing in hybrid funds is the same as that for investing in any other mutual fund category. One can invest in hybrid funds through the website/ mobile application of the mutual fund house or physically submit the application form at official Points of Acceptance (POA).
