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What are Hybrid Mutual Funds?

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Hybrid Funds are mutual fund schemes which invest in more than one asset class i.e. equity, debt and other asset classes depending on the investment objective of the scheme. These funds invest in a mix of different asset classes to diversify the portfolio with an aim to minimise the risk involved. Hybrid funds have the potential to generate relatively better returns than debt funds while being less riskier than equity funds.

  • long-term potential

    Investments offering the potential to generate better returns than debt funds

  • expo-stock-market

    Diversified exposure to both equity and debt markets

  • long-term goals

    Ideal for medium term goals

Types of Hybrid Funds

There are many hybrid funds based on their asset allocation. Investors should choose a hybrid fund which suits their risk appetite, investment horizon and investment objective.

Aggressive Hybrid Fund

Aggressive hybrid funds are open ended hybrid schemes investing predominantly in equity and equity related instruments which invest between 65% and 80% of its assets in equity and the rest in debt and money market instruments. These funds have the potential to generate relatively better returns due to higher exposure to equity and equity-related instruments than conservative hybrid funds but are more riskier than them.

Conservative Hybrid Fund

Conservative hybrid funds are open ended hybrid schemes investing predominantly in debt instruments which invest between 75% and 90% of its assets in fixed income generating securities such as Commercial Papers(CPs), Certificate of Deposit(CD), T-bills, corporate bonds and other money market instruments. The rest is invested in equity and equity related instruments. These funds are less volatile than an aggressive hybrid fund and are suitable for risk averse investors

Dynamic Asset Allocation Fund

As the name suggests, Dynamic asset allocation fund dynamically invests in both equity and debt depending on the current market conditions based on an internal investment model. This fund is suitable for investors looking for better risk adjusted returns over long term irrespective of market conditions.

Multi Asset Allocation Fund

Multi Asset Allocation Fund invests a minimum of 10% of its portfolio in at least 3 asset classes and increase/decrease its allocation according to the current market condition. These funds typically invest in equity, debt and gold related instruments including ETF and such other asset classes as SEBI may prescribe from time to time.

Arbitrage Fund

Arbitrage funds work by profiting from the difference in price between 2 markets usually the cash market and the futures market. These funds purchase stocks in the cash market and simultaneously sell it in the futures market. Arbitrage Funds have a minimum of 65% of gross exposure to equity and the rest in debt and money market instruments which is done on a tactical basis.

Equity Savings Fund

Equity savings fund invests in equity, debt and arbitrage opportunities in the cash and derivative segment of the equity market. This fund aims to generate income by investing in arbitrage opportunities with considerable exposure towards equity and can help in long term wealth generation.

View Hybrid Mutual Funds

Benefits of Hybrid Fund

  • first-beefit
    Diversification

    Hybrid funds offer the investor the benefit of diversification as it invests in a portfolio consisting of multiple asset classes. This can help lower risk as the performance of one asset class is balanced by the performance of another asset class thus stabilising returns.

  • first-beefit
    Convenience

    Hybrid funds invest in multiple asset classes giving investors exposure to equity, debt, gold related instruments (including ETF) and other asset classes (as permissible) depending on the type of fund and its investment objective. This saves the investors the hassle of investing in each asset class separately while also reducing the cost involved for investing in each asset class-based fund.

  • first-beefit
    Benefits of different asset classes

    As hybrid funds invest multiple asset classes, it benefits from the advantages each asset class offers. These funds have the potential to generate long term capital appreciation by investing in equity, the stability and lower volatility of debt funds, the perceived safe haven nature of gold and the high liquidity offered by cash depending on the type of fund.

Hybrid Fund and Taxation

Any unit of an equity oriented fund if it is held for a period of 12 months or less will be considered as “Short-term capital asset” and if held for more than period of 12 months, will be considered as Long term capital asset. In respect of all other unit of any mutual fund scheme, the same will be treated as short term capital asset if it is held by unit holder for 36 months or less and the same will be treated as Long term capital asset if it is held for more than 36 months.

Tax rates under the Income Tax Act for Capital Gains

Tax rates* under the Act
Short Term Capital Gain Units of a non- equity fund Taxable at normal rates of tax applicable to the assessee
Units of an equity fund 15% on redemption of units where STT is payable on redemption (u/s 111A)
Long Term Capital Gain Units of a non- equity fund 20% with indexation
Units of an equity fund** 10%

* Plus surcharge & health and education cess as per Income Tax Act. **Subsection 2 of section 112A provides that the amount of income tax calculated on long term capital gain exceeding one lakh rupees in a financial year shall be at the rate of 10 per cent.

FAQ

1. How do hybrid funds work

Hybrid funds invest in more than one asset class depending on the investment objective of the scheme. They invest in a mix of equity, debt, gold related instruments, cash and other such asset classes. The asset allocation is as per the investment objective and market conditions in order to generate optimal risk adjusted returns.

2. Who can invest in hybrid mutual funds?

Any investor who is allowed to invest as per the respective Scheme Information Documents and who has completed KYC procedure can invest in hybrid mutual funds by filling in the application form and submitting it to any SBI Mutual Fund branch or point of acceptance. Alternatively, an investor can also invest online through www.sbimf.com or InvesTap.

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