Wondering which Hybrid Fund is Best for you?

If you are a conservative investor looking to grow your investment at the same time your risk taking ability permits you to take marginal exposure to equities then you should consider investing in hybrid schemes. There are lot of varieties among Hybrid Schemes, what are they:

As per Securities and Exchange Board of India (SEBI) norms, there are 7 types of hybrid funds.

• Conservative Hybrid Fund: As the name suggests, it is a type of hybrid fund which invests a majority of its assets (around 75%-90% ) in debt and money market instruments and the rest in Equities.

• Balanced Fund: Hybrid funds in this category invests nearly equal amount of its assets, ranging between 40%-60%, in both equity and debt instruments.

• Aggressive Fund: It invests 65%-80% of its assets in equities and the rest in Debt, thereby qualifying as an equity fund for tax treatment. This hybrid fund features a relatively higher level of risk compared to other Hybrid funds..

• Dynamic Asset Allocation/Balanced Advantage Fund: It has the flexibility to invest any amount of its assets (0%-100%) in equity and debt instruments. It takes portfolio positions based on the market Valuations. Most of the funds in this category follow Buy Low Sell High Strategy.

• Multi Asset Allocation Fund: It is a unique hybrid fund which is mandated to invest at least 10% of its assets in a minimum of 3 separate asset classes.  These hybrid funds generally invest in Domestic equity, debt and gold in its portfolio.

• Arbitrage Fund: It is a hybrid fund which invests in arbitrage opportunities with a minimum of 65% invested in equity instruments. Arbitrage exposure helps this type of funds minimise volatility for investors and reduce overall portfolio risk and provide Debt like returns.

• Equity Savings Fund: It is mandated to invest a minimum of 65% in equity instruments, 10% in debt instruments and the remaining balance in arbitrage opportunities. For taxation purposes, it is an equity-oriented mutual fund.

While the Equity allocation can be allocated between Large, Mid or Small cap stocks, the Debt portion can be between AAA,AA or Sovereign. The allocation within Equity and Debt is strictly the Fund Managers call, but the overall allocation of minimum 65% in Equity should be adhered to. Aggressive hybrid schemes are suitable for someone who wants to play safe juxtaposed with equity allocation. As seen above they have a mandate to invest 65-80% of their corpus in equity and 20-35% of the corpus in debt. These schemes are considered as equity mutual fund schemes for the purpose of taxation. Meaning, investments held in these funds for more than a year qualify for long-term capital gains tax.

The main advantage of Hybrid Funds is the asset allocation is done by the fund manager itself so as an investor we don’t have to switch funds from Equity to Debt or vice versa. The diversification both between the asset class and within asset class is automatic so we just have to choose a good fund  and stay invested. As the switch is taken care at the fund level, we can avoid Tax implications if any.

Some of the Recommended Aggressive Hybrid Funds are:

1. SBI Equity Hybrid fund
2. ICICI PRU Equity & Debt Fund
3. DSP Equity & Bond Fund

Happy Investing!

R♥Vi

Disclaimer: The information contained in this document is for general information purposes only. Views expressed cannot be construed to be a decision to invest. The statements contained herein are based on current views and involve known and unknown risks and uncertainties. The recipient(s) before acting on any information herein should make his/her/their own investigation and seek appropriate professional advice.