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.
WHAT IS THE TAX IMPLICATION OF A HYBRID FUND?
As per new Income Tax law applicable from 1st April,2023 any fund holding less than 35% equity would be taxed as per the tax slab. If Equity is more than 35% and less that 65% fund will get indexation benefit if investor holds it for more than 3 years. Fund having more than 65% equity gets equity taxation.
WHAT ARE THE TYPES OF HYBRID FUNDS THAT CAN BE MEET A PART OF THEIR FIXED INCOME ALLOCATION?
Investors can consider using some of the following categories based on their risk appetite, but must consider their overall asset allocation before making their investment decisions:
- Aggressive Hybrid Fund: Invests between 65% and 80% of assets in equity with the balance in debt and money market instruments. Here, the fixed income allocation is about 30-35% in most cases.
- Balanced Advantage or Dynamic Asset Allocation Fund: Invests in a mix of equity and debt depending on valuations and market conditions on a pre-decided internal investment model. They could have up to 35% in debt, though it could be lower than that threshold at times.
- Multi Asset Allocation Fund: Invests a minimum of 10% in at least three asset classes – typically equity, debt and gold – and alters its allocation based on market conditions. This will work well if it has equity taxation.
- Arbitrage Fund: These funds simultaneously purchase stocks in the cash market and sell in the futures market to earn a spread and get equity taxation. They carry no credit risk.
- Equity Savings Fund: Invests in equity, debt and arbitrage opportunities in the cash and derivatives segments of the equity market, with the equity and arbitrage portion constituting 65% of the portfolio. The unhedged equity portion of portfolio is conservatively managed and could be between 10% and 25%
WHAT IS THE BENEFIT OF INVESTING IN A HYBRID FUND?
Hybrid funds help retail investors buy a single fund instead of buying two or multiple funds
