Balanced Hybrid mutual funds are mutual funds that invest across multiple asset classes. They are usually a mix of equity and debt assets, although they may also include gold or real estate.
Because of their portfolio diversity, balanced hybrid mutual funds have grown in favor among investors. By investing in asset types such as debt and equities simultaneously, these funds assist investors in diversifying their portfolios. This mutual fund’s principal goal is to balance the risk-reward ratio and optimize investment profits.
How do they work?
The Securities and Exchange Board of India (SEBI) defines balanced hybrid funds as having a 10 to 60% exposure to equities and equity-related assets. Deployment to debt instruments might be similar. But arbitrage is not allowed in this fund category.
Furthermore, the benefit of this type of mutual fund is that it never exceeds the 60% limit set by the investing standards. Because of this, the best balanced mutual funds provide larger returns from their stock component during a bull market. The debt component of the fund likewise shields returns from declining during a bad market.
Initial allocation to debt and equity under the fund plan will be equal. If market fluctuations lead the equity allocation to shift, the fund management will rebalance and restore the original proportion. This fund is a simple, yet effective method to engage in both equity and debt asset classes, with equities providing more long-term wealth building prospects and debt providing portfolio stability.
Less Volatile:
While stocks have the potential to provide substantial long-term returns, many investors, particularly novice ones, panic and flee when the market falls. Because of this attitude, individuals are unable to benefit from the substantial profits that equity funds may provide. Perhaps, they could be better served with this balanced hybrid fund. Many investors are interested in investing in stocks but are concerned about market events, phases, fluctuations, and timing. The balanced method of having growth assets (equity) and stability assets (debt) in the portfolio is a straightforward yet effective technique to employ. This fund’s asset classes have the capacity to generate rewards.
In addition, many investors neglect to maintain adequate asset allocation, which ultimately decides portfolio results. Hence to those moderate-risk investors, this Balanced hybrid fund will provide automated asset allocation. There won’t be any tax incidence because the fund management would adjust the portfolio accordingly.
Tax treatment:
The majority of fund firms provide aggressive hybrid strategies. They are taxed as equities funds since they have a minimum stock allocation of 65%. Capital gains on the sale of these units held for more than a year are taxed at 10% after the capital gains surpass one lakh in a year.
However, capital gains realised on the sale of units held for more than three years in a balanced hybrid fund with a 40-60% equity allocation will be taxed at 20% with indexation advantage. Shorter-term holdings will be taxed at slab rates. (However, they will be treated better than pure debt funds or conservative hybrid funds.)
Who should consider this fund?
This Balanced hybrid fund will satisfy the demands of many investors. It may be appealing to first-time investors or cautious individuals wishing to begin investing in stocks. It may also be of interest to investors who are overweight in mid-and small-cap funds and want to reallocate their assets to debt and large-cap stocks in order to take profits in line with their asset allocation.
When choosing a mutual fund category, investors should examine aspects such as financial objectives, risk tolerance, and time horizon, and these requirements apply to this Balanced Hybrid Fund as well. Those with a higher risk tolerance and a longer investing horizon can consider a higher equity exposure category.
