Hybrid Funds: Introduction to Hybrid Mutual Funds & its Benefits

Hybrid funds allocate the investment corpus to both debt and equity owing to the low correlation between the two asset classes. On account of this, the chances of investors losing all their money is extremely low. Long-term capital gains from the debt component are taxed at 20% after indexation and 10% without indexation benefits. Alternatively, an investor can also invest online through or InvesTap. Equity oriented hybrid funds are ideal for investors looking for growth in their investment with some stability.

That said, in case of the latter, individuals need to route their investments via a broker or distributor. No need to issue cheques by investors while subscribing to IPO. Just write the bank account number and sign in the application form to authorise your bank to make payment in case of allotment. No worries for refund as the money remains in investor’s account.”

Certain funds may also channel a small portion of their capital towards liquid schemes. With a wide range of hybrid funds, all types of investors may get their own perfect fund, suiting their respective risk profiles and risk appetite. Investors can also choose to invest in different categories of hybrid funds based on their financial goals and time duration left for such goals. Fund for various investment needs – Hybrid funds offer a range of funds suiting your various short term and long term investments needs. If you are a mutual fund investor looking for a dynamic portfolio, then hybrid mutual funds are right for you, these funds give you the best of both worlds-equity and debt. Hybrid mutual funds help you meet your financial goals at a comparatively balanced risk and profits ratio.

Investors who don’t want to take much risk in their investment can prefer investing in this scheme. On 6th October 2017, Securities of Exchange Board of India introduced six categories of Hybrid Funds. This is to bring uniformity in similar schemes launched by the different Mutual Funds.

During such times, the fund invests primarily in debt securities and cash. For taxation, they are considered to be equity funds and offer tax exemption on long-term capital gains of up to Rs. 1 lakh. The fixed income component makes it a good option for equity investors as it helps mitigate the volatility of equity investments.

Debt-Oriented Hybrid Funds

However, investments in such debt instruments is not tax effective as the interest may be subject to tax on accrual basis as per the applicable slab/corporate tax rates. Further, owing to the reduction in interest rates in recent years, many of these instruments may not offer competitive returns. Therefore, investors resort to investment in hybrid mutual funds to manage their risk and tax cost. While hybrid equity funds funds enjoy lower taxation in the long term, the debt oriented hybrid funds enjoy the benefits of indexation for the long term capital gains. Before you invest in a mutual fund belonging to this category, it is important to understand how the taxation of conservative hybrid funds works. As the portfolio of these mutual funds consists predominantly of debt-oriented assets, they are taxed in a manner that is similar to the taxation of pure debt funds.

That being said, there are occasions during which good arbitrage plans aren’t available. In such scenarios, the fund directs its assets towards debt securities and cash. That being said, long-term capital gains drawn from this kind of hybrid fund are taxed in the same manner as equity funds. Hybrid funds invest in a mix of assets, creating a balanced and diverse portfolio.

HYBRID FUNDMirae Asset Equity Savings Fund

They allocate assets in a blend of equity and debt so that they can tap the benefits of both. The equities can generate high returns but are also highly volatile whereas the debt can give stable returns at low risk. This evenly distributes the risk factor where debt securities can counterbalance the negative impact of equity markets.

It’s also important to consider factors such as the fund’s performance history, fees, and management team when choosing a mutual fund. It’s always a good idea to consult with a financial advisor before making any investment decisions. Arbitrage funds capitalize on inefficient markets by simultaneously buying stocks and bonds in one market and selling it to the other. The fund managers use this strategy to make the most benefit out of the difference in prices in different markets. They usually buy in the cash market and sell in the future market to draw the capital. Fund managers have a tactical approach in exposing the fund corpus to both assets.

Hybrid funds carry an investment risk proportionate to the allocation of assets in its portfolio. Hence, it is important to analyze the portfolio of the scheme carefully to get a good understanding of the risks involved. Each hybrid fund has a different combination of equity and debt targeted at different types of investors. These schemes provide taxation benefits that apply to equity-oriented programmes, thus ensuring better tax-adjusted returns. Is part of the IIFL Group, a leading financial services player and a diversified NBFC. The site provides comprehensive and real time information on Indian corporates, sectors, financial markets and economy.

Hybrid funds combine the risk and return both the funds offer and provide a blend of risk and return. The fund management involves risk management, portfolio diversification, and asset allocation. This is the reason why it is ideal for investors who look for a balance of risk and rewards. A monthly income plan invests primarily in debt rather than in equities but gives better returns than pure debt funds due to the presence of equity elements.

Advantages of Hybrid Mutual Funds – 6 Reasons Why You Should Invest in Hybrid Funds

Open an account with the brokerage firm or mutual fund company. You will typically need to provide personal information, such as your name, address, and Social Security number, as well as financial information, such as your income and net worth. Fund managers of these schemes maintain a prudent mix of equity and debt to fulfill the objective of the fund. The remaining 35% is invested in debt securities and money market instruments. Most investment advisors ask investors to create an investment plan based on their financial goals, risk tolerance, and investment horizon.

Hybrid funds offer the investor the benefit of diversification as it invests in a portfolio consisting of multiple asset classes. This can help lower risk as the performance of one asset class is balanced by the performance of another asset class thus stabilising returns. It is a category of mutual funds investing in more than one asset class. These plans typically combine equity and debt, while some also include gold and REITs.

Multi-asset allocation fund

You should invest in an aggressive hybrid fund if you find yourself in any of the following situations. Like all other funds, hybrid funds also charge a fee to manage your portfolio. When opting for a hybrid fund, one must look for a low expense ratio. These funds invest at least 65% of the money in equity instruments and the rest in the debt and money market. Short-Term Capital Gains Tax – Like LTCG, STCG is taxed differently for equity and debt. But, for debt, the profits are added to the investor’s net income and taxed accordingly.

• Balanced funds are a type of hybrid funds that allocate funds to equity and debt classes on an almost equivalent proportion.
• Sharpe Ratio is the extra returns generated by a fund over the risk-free return.
• All efforts have been made to ensure the information provided here is accurate.
• Some funds can dynamically change the asset allocation ratio depending on the market conditions.
• The exit load charged to the investor is credited to the scheme.

Investing in hybrid funds can be a smart way to reduce your tax liability, as these offer a combination of equity and debt investments that provide tax benefit. By investing in hybrid funds, you can take advantage of the lower tax rate on long-term capital gains from debt investments and the tax-saving benefits of equity investments. This kind of hybrid mutual fund operates by buying stocks for a lower price in one market and selling them for a higher price in another market. This kind of fund’s fund manager is on the lookout for arbitrage opportunities at all times such that she/ he can maximize the fund’s returns.

For instance, if you’re an hybrid fund meaning investor with a high risk appetite, you can invest in equity mutual funds. Here are the five things you should consider before investing in hybrid mutual funds. High-risk takers can opt for aggressive hybrid fund or dynamic fund. Low risk takers can invest in arbitrage or conservative hybrid fund.

Moreover, the indexation benefit will also be allowed in such cases. Investors can look at Hybrid funds as an option where in the equity exposure is between 35-65% in order to have the same taxation structure as before for a debt fund. However, one should bear in mind that the investor will need to keep the asset allocation structure which he is comfortable when he is opting for a hybrid model of investing. So for eg in an investor was previously investing say 50% in equity and 50% in a debt fund independently, he can now look at a Hybrid fund with a similar exposure to reduce his tax component.

So, the benefit is that as long as one is not realising any gain, there is no tax liability. Firstly, many funds were structured to re-invest their receipts , allowing the unit holder to accumulate income without payment of tax. Secondly, the income from transfer of the units from the funds may be taxable at concessional rates as compared to interest income.

Not Choosing the Right Fund – Investors often look at the past performance of a hybrid fund before investing. However, past performance is not an accurate indicator of future performance. Hence, you must evaluate the fund’s portfolio, weightage on equity and debt, and macroeconomic conditions. Market Risks – Since the equity market is highly volatile and hybrid funds have exposure in equity, they carry market risks.

• There are 2 goals of any hybrid fund, capital appreciation in the long term and higher return in the short term.
• The minimum investment required for Quant Multi Asset Fund is Rs. 5,000, and SIP is Rs. 1,000.
• Hybrid mutual funds can be defined as mutual funds that seek to create balanced portfolios by offering regular income to investors in addition to capital appreciation over a longer time frame.
• Now that you know Hybrid Funds 101, you can go ahead and download digibank.
• Most often, they are a combination of Equity and Debt assets, and sometimes they also include Gold or even Real estate.

Long-term capital gains drawn from hybrid funds that account for more than INR 1 lakh are taxed at 10 per cent without indexation whereas short-term capital gains are taxed at 15 per cent. If the holdings are less than 65 percent in equity-related instruments, then it gets taxed like a debt fund, much like conservative hybrid funds. Aggressive hybrid funds function by investing in equity as well as debt. That said, these funds must allocate 20 per cent of their assets toward debt instruments.

This mode allows them to invest a fixed amount at regular intervals. They serve as a good entry point for new investors in the equity market, also can be used for saving for any specific medium-term goal. Hybrid funds offer varying levels of risk tolerance ranging from conservative to moderate and aggressive. Not too small that there is not enough attention given and not too large that it becomes difficult to manage. It is important to consider your risk tolerance, financial goals, and investment horizon before choosing a scheme.