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What is a Balanced Hybrid Fund
A Balanced Hybrid Fund is a type of Mutual Fund that aims to diversify the investment in equity and debt assets in a specific ratio within the portfolio. Usually, these Hybrid Funds comprise a mix of stocks and bonds, providing investors with comparatively stable returns. The number of funds invested into each asset class must remain within the limits set as per SEBI guidelines.
Balanced Hybrid Mutual Funds are usually equity-oriented, comprising about 40-60% of a fund’s overall portfolio. The goal is to invest in multiple assets so that if a particular asset class is volatile, the fund manager can shift the investments in fixed income securities, providing a fallback option whilst also allowing the fund manager to maintain secure returns.
Advantages of Balanced Hybrid Fund
The ultimate aim of Balanced Hybrid Funds is to provide investors with the best of both worlds. Some other advantages of these funds are:
- Instant Diversification: This is the primary advantage of a Balanced Hybrid Fund. The fund manager aims to ensure optimal asset allocation and continuous rebalancing of the portfolio based on need. Diversification across various asset classes results in the dual purpose of capital appreciation, along with risk reduction.
- Taxation Benefits: Balanced Hybrid Fund is an investment scheme where the fund manager has the option to migrate between debt and equity. They provide investors with the best option to limit their investment liabilities.
- Protection from Market Inflation: The asset allocation aids investors in safeguarding their investment from inflation to a certain extent asset allocation in a Balanced Hybrid Fund scheme offers regular income through the debt component and capital appreciation through the equity component. The unique asset allocation aids in protecting returns against inflation of the current market.
- Risk Reduction: Investments only in equities can produce high returns but they may be risky. A Hybrid Fund that comprises of debt instruments helps to balance the overall risk present in Equity Funds. Thus, a Balanced Hybrid Fund portfolio is considered less risky when compared to pure equity investment schemes.
- Re-balancing of Funds Allocations: Markets can be volatile and full of uncertainties. There may be times when equity markets are high in comparison to debt markets and vice versa. In these circumstances, the fund manager moves across the two major asset classes of equity and debt and tries to balance the fund’s overall performance against fluctuations in the market.
How are Balanced Hybrid Funds Taxed
Balanced Hybrid Fund taxation can be divided into the following categories:
- Equity Oriented Funds: Balanced Hybrid Fund with an equity-based investment of more than 65% attracts equity taxation. They are taxed at 15% on the short-term capital gains or STCG. The STGC here includes all the profits received within a year of the equity-related ratio.
- When investors hold Balanced Hybrid Funds for more than 12 months, then they are taxed at the rate of 10% as the long-term capital gains tax or LTCG. However, the individuals are taxed only when the returns from the funds exceed Rs. 1 Lakh in total.
- Debt Oriented Funds: Balanced Hybrid Funds that are more debt-oriented are taxed as debt assets. Here the Hybrid Funds invest at least 65% of their total investments in debt securities. The short-term capital gain is taxed as per the tax slab of the investor, gains are considered as short term if the investment is held for less than 36 months. Long-term capital gains are considered only when these funds are held for more than 36 months. LTCG is taxed at 20% with indexation benefits.
Who Should Invest in Balanced Hybrid Funds
Balanced Hybrid Funds are suitable investments for a medium-term time horizon. Investors who like to invest with lower risk components, or are looking for moderate returns, and a modest capital appreciation should invest in a Balanced Hybrid Fund. Those with a low-risk appetite should invest in Hybrid Funds as they provide a balance between the benefits and risks of the investment.
The biggest advantage of Balanced Hybrid Funds is that they never exceed the 65% limit according to the investment guidelines. Thus, during the bull run of the market, balanced accounting Debt Hybrid funds can generate higher returns from their equity class component, and vice-versa.
How to Invest in Balanced Hybrid Funds Through Nivesh
Any investor can enjoy the benefits of investing through Nivesh in the following easy steps:
- Create an account in Nivesh by providing your basic KYC details. (If you already have an account then just login into your account)
- On your portfolio page click on the Buy New tab at the right top corner of the screen.
- Select the category and choose the funds you want to purchase.
- If you already know the name of the fund to buy, then you can search the particular fund through Quick Order.
- Fill the transaction details and confirm. You can place up to 5 orders in one go.
- You can make payment through your registered account through UPI, Direct Pay, or NEFT/ RTGS , Bank Mandate or Cheque. For same-day NAV, select UPI, Direct Pay or NEFT / RTGS as other payment options may take a few days to clear, Nodal account takes about 1-2 days to clear payment from the approved mandate and cheque takes about 2-5 days in clearing due to which you will not get the same-day NAV.
Frequently Asked Questions (FAQs)
1. What are Balanced Hybrid Funds in Mutual Funds?
Balanced Hybrid Mutual Funds are also known as Hybrid Funds. These are the investments that contain a debt component, and an equity component in a pre-defined ratio within a portfolio.
2. Are Balanced Hybrid Funds Safe to Invest?
Balanced Hybrid Funds, as the name suggests, provide investors with a balanced return. They are good for the investors who want a stable income coupled with safety and a moderate capital appreciation. Although these funds are known to be comparatively less risky, no mutual funds can guarantee a 100% safe investment.
3. How Much Share of a Portfolio Should be Invested in Balanced Hybrid Funds?
By controlling the number of funds in your portfolio an investor can achieve a diversification goal to optimize their returns.
4. How are Balanced Hybrid Funds Taxed
Balanced Hybrid Funds tax: those with high equity assets are treated as equity funds and are taxed at 15% for STCG when the holding period is less than a year. When holding periods are more than one year, then they are treated as LTCG and are taxed as 10% for returns above Rs 1. Lakh. (Returns up to Rs 1 lakh are tax exempted)
Balanced Hybrid Funds with higher exposure to debt components are treated as debt funds and are taxed as per the individual’s income tax slab for STCG if held for less than 3 years. While for LTCG with the investment being more than three years, these are taxed at 20% with indexation benefits.
5. How Long Should you Invest in Balanced Hybrid Funds?
Most mutual fund types including Balanced Hybrid Funds are good for long-term investing, more than five years. Investors are suggested to stay invested for at least 3-5 years to earn higher returns.
6. Can we Redeem Balanced Hybrid Funds Anytime?
Yes, you can. You can redeemBalanced Hybrid Funds, anytime you like after accounting for any exit load if applicable.
