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What Are Hybrid Funds?





Hybrid Funds are those type of mutual funds in which investment is done in equity funds, debt funds and bonds. In these funds, the investment portfolio is created by having a mix of stocks and debt funds, where the proportion of each asset class changes according to market scenario.

  • These are diversified funds thus the risk involved is less
  • These funds provide freedom to fund managers to switch funds from debt to equity and vice-versa
  • These funds are more likely to invest in equity as compared to debt funds
  • Exposure to equity is more thus hybrid funds have high risk involved

WHO ARE THE PEOPLE WILLING TO INVEST IN HYBRID FUNDS?

  • People looking for diversification across all asset classes through a single fund
  • Looking for both capital appreciation as well as current income
  • People investing with long-term perspective
  • Who are willing to take moderate risk
  • People who expect high growth potential

WHAT ARE THE BENEFIT OF HYBRID FUNDS?

Diversification

Hybrid funds are quite diversified as they invest in both equity and debt. Equity earns them a high rate of return whereas debt provides stability in return. In this context, MIP is considered better as the equity exposure is less.

Hassle-free

Hybrid funds are considered hassle free as the fund managers divide the fund in equity and debts; also they keep a close watch and make timely switching when necessary. Whereas, maintaining a separate portfolio for debt and equity and monitoring them is quite tedious.

WHAT ARE DIFFERENT TYPES OF HYBRID FUNDS?

Equity Oriented Funds

  • In equity oriented/balanced fund portfolio composition is done in a manner that at least half of the investment (it can go up to 65% as per fund manager’s choice) is made in equity related and equity market. Whereas other half is invested in debt and money market instrument
  • Rate of return from equity help in earning higher return whereas debt funds contributes towards stability
  • Since investment under these funds is biased to equity thus they attract equity taxation where if it is held for more than 1 year then the gains from these funds will be tax-free
  • Balanced funds are considered most appropriate for people willing to take moderate risk and have an investment horizon of 3 years or more
  • Under these categories below are some popular fund available on market:
  • Balanced Fund
  • Children Gift Fund (with more than 50% equity)
  • Retirement Saving Fund (with more than 50% equity)
  • Asset Allocation Fund (with more than 50% equity)
  • Equity Arbitrage Fund



Debt Oriented Hybrid Funds

  • In debt oriented fund portfolio composition is done in a manner that at least half of the investment (it can go up to 65% as per fund manager’s choice) is made in debt related instrument. Whereas other half is invested in equity
  • Rate of return from these funds is less than Equity hybrid fund but more than Debt fund, due to composition of equity
  • Since investment under these funds is biased to debt thus they attract debt taxation where if it is held for more than 3 years then the gains from these funds will be indexed
  • If you withdraw these funds before 3 years then all gains will be added to your taxable income
  • Debt hybrid funds are considered most appropriate for people who are conservative in nature and want to earn extra return then debt fund with less participation in equity
  • Under these categories below are some popular fund available on market:
  • Capital Protection Fund
  • Retirement Savings Fund
  • Dual Advantage Fund
  • Children Carrier Fund
  • UTI Unit Linked Insurance Plan

Monthly income plans (MIPs)

  • These are those kinds of funds which invest a marginal portion in equity up to 30% of total investment
  • Investor can go for monthly, quarterly, half-yearly or annual returns
  • Low risk is involved as compared to pure equity funds but risk is high if compared with pure debt funds
  • Growth and Dividend both options are provided
  • These funds are ideal for retired people who want to get a monthly income
  • Funds under this category will be called MIP across all Mutual Fund Companies. Although allocation in equity, under these MIP Funds is different in different companies
  • Since these funds are biased to debt thus they attract debt taxation where if it is held for more than 3 years then the gains from these funds will be indexed
  • If you withdraw these funds before 3 years then all gains will be added to your taxable income

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