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Hybrid Funds

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What is a hybrid mutual fund?

Hybrid mutual funds allow you to invest in a combination of debt and equity. These are also called balanced funds.
You have:

Equity Hybrid: In an equity hybrid fund, at least 65% of the corpus is invested in equities and the rest in debt. To be called an equity fund, at least 65% of the fund needs to be invested in equity. The remaining corpus is invested in debt up to a maximum of 35%.

Debt Hybrid: In a debt hybrid fund, at least 75% of the corpus is invested in debt and the rest in equities.

Why invest in Hybrid Funds

Safety

Hybrid funds have an exposure to debt. This protects your investment when stock markets are volatile or crash.

 

Better than Debt Funds

When stock markets rise, or there is a bull run, the hybrid funds give better returns than debt funds.

 

Natural Diversification

With an exposure to both equity and debt the hybrid fund is naturally diversified. You don't have the headache of balancing the portfolio.

Tax Benefits

Equity hybrid funds are treated as equity, for tax purposes. Long term capital gains are tax exempt, just like equity.

 
Capital Protection Funds:

This debt oriented fund is close ended and has 80% in debt and 20% in equity. The huge proportion of debt ensures capital protection, as it is close ended in nature and the equity component helps in gaining decent returns in the stock markets. These funds cannot use the word "guaranteed" or "capital protection" .They can only be called as capital protection oriented. These funds purchase "AAA" rated debt or debt of very high quality, which helps the principal amounts grow over a fixed tenure. This protects the capital and the equity component generates returns, far in excess of its proportion, by investing in the options and futures market.

Monthly income plan (MIP)

These are basically debt oriented mutual funds which invest 75-80% of the corpus in debt and the rest in equity. These funds can be further divided into a monthly income plan with a dividend option and one with a growth option.

The dividend option helps to generate income in the form of dividends, which are tax free in the hands of the investors

In the growth option no dividend is paid .The amounts are reinvested in the fund itself. This increases the value of the fund and huge returns are obtained on liquidation of these funds.

If the MIP is sold for a profit within a year, it is called a short term capital gain. These amounts are added to your income and taxed as per the income tax slab you fall under. Long term capital gains beyond a year, are taxed at 20% with indexation benefits.

Tax Aspects of Hybrid Funds

Equity hybrids are taxed just like an equity mutual fund. If the equity hybrid is sold under a year, the short term capital gains are taxed at 15%.. If the equity hybrid is sold after a year there is no tax.

Debt hybrids are taxed just like a debt fund. Short term capital gains (gains under 3 years), are added to your taxable salary. Taxed as per income tax slab you fall under. Long term capital gains (gains over 3 years), are taxed at 20% with indexation.

 

Concepts & FAQ's Hybrid Funds

What is a Hybrid Mutual Fund?

Hybrid Mutual Funds are characterized by portfolio that is made up of a mix of stocks (equity) and bonds (debt). The mix and percentage can vary over time in reaction to the market conditions as perceived by the fund manager, or the mix could remain fixed.

The purpose of Hybrid Mutual Funds is to provide a balanced portfolio proving both growth and security to the investor's investments.

For what kind of investors is Hybrid Mutual Funds suitable?

Balanced funds are a good starting point for most first-time investors because of the pre-defined equity-debt mix

Thinking of buying a Hybrid Funds ?

To be absolutely sure of WHAT TO LOOK OUT, talk to IndianMoney.com on the phone for FREE financial consultation.

Expert Financial Advisors from IndianMoney.com would provide you unbiased, correct and up to date information so that you can make an informed financial decision.

Frequently Asked Questions

What are equity funds?

Equity funds are those which invest primarily in stocks. Within equity funds, the structure of a particular fund may differ from that of another. Equity funds include diversified funds, market capitalization based funds, sector specific funds, theme based funds and tax saving funds. Equity funds are generally aimed at providing comparatively high returns within the mutual finds family, but with a relatively higher degree of risk.

How does an investor in equities make money?

Investors get returns on their investments in two ways - dividend and capital gains. The former depends on earning levels of the particular company and the decision of its management. The latter arises happens when the market price of the shares rises above the level at which the investment was made.

Why invest in equities?

Investing in equities/shares offers many benefits over other asset classes like a high level of liquidity which unlike property, gives you ready access to your money. There are more than 6000 companies listed on the stock market in which you can buy shares so there are plenty to choose from to match your investment needs.

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Hybrid Funds Articles

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Mutual funds add around 5 lakh folios in Aug

Thursday, September 12, 2019, 5:38 PM

The mutual fund industry has added around 5L investors' account in August, taking the total tally to 8.53-crore, amid volatile market conditions. In comparison, the industry had added 10.29L new folios in July. Folios are numbers designated to individual investor accounts. An investor can have multiple folios. The total folio count stood at 8.38L in June, 8.32L in May and 8.27L in April.

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Mutual fund investors continue to pour in money through SIPs. Mutual funds received Rs 8,230.76 crore via SIP in August, marginally lower than the collections last month, shows Amfi data. In July, mutual funds collected Rs 8,324 crore via SIPs. SIP AUM on the other hand has risen from Rs 2.69 lakh crore in July to Rs 2.71 lakh crore in August.
 

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Saturday, January 19, 2019, 6:00 PM

As the name suggests, financial market is a marketplace where the trading of financial instruments like bonds, mutual funds and shares takes place. It is an arrangement or institution that facilitates trading and where buyers and the sellers aggregate to trade in financial products. The financial market can be classified into the primary and secondary market.

What is a Systematic Investment Plan?

Wednesday, September 5, 2018, 5:28 PM

A Systematic Investment Plan or SIP is a smart and hassle free mode for investing money in mutual funds. SIP allows you to invest a certain pre-determined amount at a regular interval (weekly, monthly, quarterly, etc.). A SIP is a planned approach towards investments and helps you inculcate the habit of saving and building wealth for the future.

What is Net Asset Value (NAV)?

Wednesday, September 5, 2018, 11:19 AM

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