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What are Hybrid Mutual Funds?

2 Mins 07 Dec 2021 0 COMMENT


Mutual Fund investors get broadly classified into three following different categories – risk-takers, safe players, and guaranteed return seekers. The first category invests in Equity Funds, while the second category opts for Debt Funds, and the third type is Hybrid Fund.

What are Hybrid Mutual Funds?

A Hybrid Mutual Fund invests in Equity and Debt instruments to enjoy diversification and reduce the overall risk. An ideal blend of Equity and Debt, a Hybrid Fund offers higher returns than Debt Funds and has lower risk than Equity Funds. It helps get an appreciation of wealth over the long term and generates regular income in the short term. If you are new to Mutual Fund Investment and want to get Equity exposure, consider Hybrid Funds.

Types of Hybrid Funds

Hybrid Funds get categorised based on asset allocation. Some funds have a high Equity allocation, while some others are inclined towards debt. Here are different types of hybrid funds.

Equity-Oriented Funds: When the fund invests anything higher than 65% of the total assets in Equities, it is Equity-Oriented Funds. The balance gets invested in Debt and Money Market Instruments. The Equity aspect in the fund includes healthcare, finance, automobile, and some other sectors.

Debt-Oriented Funds: They invest higher than 65% of the total assets towards Debt instruments. It includes fixed-income investments like Bonds, Debentures, Government Securities, Treasury Bills, and more.

Arbitrage Funds: The fund manager here buys the stocks at a low cost in one market and sells them at a high price in a different market to generate high returns. But arbitrage opportunities are not readily available, and in such cases, the funds can get invested in Debt instruments. The fund is safer like Debt Funds. They get treated like Equity Funds when it comes to Long-Term Capital Gain Tax.

Balanced Funds: They invest a minimum of 65% in Equity and Equity-related instruments and the balance in Debt instruments. For tax purposes, they are considered Equity Funds, but you get a tax exemption on the Long-Term Capital Gain of up to Rs. 1 lakh. Balanced Funds mitigate the volatility that comes with Equity investment.

Monthly-Income Plans: This is a Hybrid Fund that primarily invests in fixed-income securities and has a small part allocated to the Equity and Equity-related instruments. It generates higher returns than the pure Debt schemes and offers regular income to investors. Such a Hybrid Fund is ideal for investors who do not want to take the risk of investing in Equity and want consistent income. It helps select a fund keeping the investment goals and risk appetite in mind.


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