Hybrid Funds

What is hybrid mutual funds?

Mutual fund investments are owned by a group of individuals and are professionally managed by fund managers. Hybrid mutual funds are investments that divide your money among a mix of asset classes. In some hybrid mutual fund portfolios, the equity investments are higher than the debt investments and vice versa. The risk and the returns in hybrid mutual fund schemes are balanced by investing in certain proportions of equity and debt securities. Here are the two categories of Hybrid mutual fund schemes available: 

Equity hybrid: In this, at least 65% of the corpus is invested in equities and the remaining in debt. Thus, in this scheme, your investments are exposed due to the higher equity component. The remaining 35% of debt helps in balancing the share market volatility. 

Debt hybrid: In this type, at least 75% of the investment is channelized towards buying debt instruments and the remaining 35% consists of equities.

Tax benefits of hybrid funds: 

The hybrid mutual fund schemes are taxed just like the equity mutual fund schemes. Thus, equity hybrid schemes sold under a year are taxed as per short-term capital tax gains at 15%. If the equity part is sold after a year then no taxes are deducted. 

Similarly, in the case of debt hybrids, short-term capital gains tax is added to your taxable salary for gains under 3 years. For debt, long-term capital gains tax is deducted at 20% with an indexation benefit for gains over 3 years.  

Why invest in hybrid funds?

Safety: A hybrid fund provides you with a balanced scheme where the debt component balances the investment during a stock market crash. 

Better than debt funds: The hybrid funds allow you to take advantage of both the stock market and debt funds. 

Natural diversification: Through hybrid funds, your portfolio gets automatically diversified. You don’t have the headache of balancing the portfolio. 

Tax benefits: Equity hybrid funds are taxed just like equity schemes.