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  • Hybrid Funds

  • What is a Hybrid Fund?

    A Hybrid Fund is a type of mutual fund which has a portfolio that consists of a combination of bonds and stocks. This combination can remain fixed or may vary equivalently over time. Most hybrid funds are a combination of debt and equity securities in varying proportions. For those who are looking for a low risk investment with average capital appreciation and better returns, a hybrid fund is the best option.

    Benefits of Hybrid Mutual Funds

    By investing in a hybrid mutual fund, investors can reap the following benefits:

    • Hybrid funds generate higher returns since they combine different asset classes.
    • Investors can switch from one combination of assets to another that offers a higher opportunity for growth. A change can be made with fluctuations in market conditions.
    • Hybrid funds offer diversity since the portfolio contains the best bonds and stocks which assure lower risk and aggressive growth in returns.
    • These investments can be easily managed by the investor himself/herself. However, an expert fund manager is required in order to make changes to the portfolio.

    Types of Hybrid Funds

    • Debt Oriented Hybrid Funds – Debt oriented hybrid funds consist of aggressive, moderate and conservative funds. These schemes vary due to the difference in exposure to debt and equity. An aggressive hybrid mutual fund has an equity exposure of 30%, a moderate hybrid mutual fund has an equity exposure of maximum 30% and a conservative hybrid mutual fund will have an equity exposure of 10% or lesser. The holding period is 3 years for funds with long-term capital gains. Monthly Income Plans (MIPs) fall under this category. It only has a marginal exposure to equity, which is not more than 30%. The investor will receive regular returns on the investment on an annual, half-yearly, quarterly or monthly basis. MIPs offer both dividend and growth options.
    • Equity Oriented Hybrid Funds – Equity oriented hybrid funds are centered mostly around equities, in the sense that exposure to equities is higher than the exposure to debt. These type of hybrid funds are highly volatile due to the increased exposure to equities. In order to make equity investment for tax benefits and capital gains, balanced funds with an equity exposure above 65% is the best option. Balanced Fund is an equity oriented hybrid fund. 50% of the portfolio would consist of equity and equity-related securities and the remaining would be invested in money market instruments and debt. Returns from Balanced Funds are free of tax if it has been maintained for at least a year.
    • Arbitrage Funds – Arbitrage funds are hybrid mutual funds that seize arbitrage opportunities in the cash and derivative market. A large portion of the investment is made in the debt segment. Arbitrage hybrid funds have lower equity taxation as well as lower volatility. There is risk associated with these funds.
    • Asset Allocation Funds – Asset Allocation Funds are hybrid funds in which the exposure to debt and equity keeps varying. Most of the funds that are associated with this are from funds schemes.
    Following are a few examples of different hybrid funds available in the Indian market:

    Hybrid Funds - Capital Protection

    Example:

    • ICICI Pru Capital Protection Oriented VI-A
    • ICICI Pru Capital Protection Oriented VII-B
    • ICICI Pru Capital Protection Oriented VI-F

    Hybrid Funds - Asset Allocation

    Example:

    • Kotak Multi Asset Allocation Fund
    • SBI Dynamic Asset Allocation Fund

    Hybrid Funds – Fixed Maturity Plans

    Example:

    • Kotak Hybrid Fixed Term Plan
    • DHFL Pramerica Hybrid FTF

    GST rate of 18% applicable for all financial services effective July 1, 2017.

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