The Rationale Behind Investing in Hybrid Mutual Funds
Are you looking for decent returns with moderate risk in your investment? Are you not sure how much to allocate in equity and debt funds? The answer to your queries is hybrid mutual funds. Yes, apart from equity and debt funds, there is another category of funds that has both equity and debt instruments in it.
This article will take you through the different aspects of hybrid funds and why you should consider hybrid funds like sbi equity hybrid fund and others.
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What Are These Hybrid Funds?
To achieve better asset allocation, diversification, and higher returns at lower risks, investing in hybrid funds started. As many investors want to earn higher returns than debt funds offer but do not have the risk appetite for equity funds, they go for hybrid funds, which offer the best of both worlds.
Hybrid funds are classified into seven sub-categories as per SEBI, AMFI which are –
- Conservative hybrid funds invest 10% to 25% in equity and the remaining in debt instruments.
- Balanced hybrid funds invest 40% to 60% in both equity and debt
- Aggressive or Equity hybrid funds like SBI Mutual Fund’s equity hybrid fund which invests around 80% in equity and equity-related instruments, with 65% being the minimum and the remaining in debt instruments.
- Dynamic Asset Allocation or Balanced Advantage Funds invests in equity and debt depending upon the market scenario.
- Multi-Asset Allocation Fund invests 3 types of asset classes with 10% in each class of assets.
- Arbitrage Fund follows arbitrage strategies with at least 65% of equity investments.
- Equity Savings are the final sub-category of hybrid funds, which invests 65% minimum in equity and related instruments, 10% minimum in debt, and also in derivatives as specified in SID.
Why Should You Invest In Hybrid Funds?
If you are wondering why you should invest in hybrid funds like the SBI equity hybrid fund offered by SBI Mutual Fund, then here are certain things you need to consider –
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- Debt instruments in hybrid funds provide regular income and higher stability of returns to investors.
- Equity hybrid funds are great for those looking for higher growth and returns from their investments but with a certain amount of stability which is given by the debt portion of the fund.
- Hybrid funds, on average, provide a 14.11% return p.a, which is higher than debt funds and even some of the large-cap mutual funds.
Who Should Invest In Hybrid Funds?
Hybrid mutual funds are suitable for most investors as these funds are not highly risky as equity funds and also provide generous returns. If you have a long-term investment goal with stable returns, then hybrid mutual funds can be a good option for your portfolio.
Things To Consider While Investing In Hybrid Funds
The things you need to know while investing in hybrid funds –
- Time horizon: These funds are suitable for those who can stay invested for at least 5 years or more.
- Taxation: The taxation of hybrid mutual funds is done in a unique way. The equity and non-equity instruments are taxed differently, even when they are in the same fund. So, for short-term capital gains, the non-equity units of the fund are taxed as per the investor’s tax slab, so if you fall into the highest tax slab which is 30% at present, the profits from a non-equity portion of the hybrid fund will be taxed @30%. While for equity units, 15% will be applicable.
Long-term capital gain taxes will be applicable for non-equity units at @20% with indexation and @10% for equity units.
Is Sbi Equity Hybrid Fund Good For Your Investment Portfolio?
If you are looking for one of the top equity hybrid funds, then SBI Mutual Fund offers a sbi equity hybrid fund that offers an average of 14.31% return per annum, which is slightly higher than the category average as well.
The fund has no lock-in period, and the AUM of the fund at present is Rs. 53018 crores. The expense ratio of the fund is 0.85% as of June 30, 2022.
The exit load is applicable at @1% if more than 10% of the units are redeemed within 365 days of purchase. Otherwise, no exit load is applicable. The current 3-year return of the fund is 30.91%, while the same of the category is 15.75%. So, you can see how well the fund has performed in the past 3 years that it has provided double returns of what the category has been offering.
To conclude, equity hybrid funds are a great investment for people looking for both capital appreciation and regular income with a moderate risk appetite. If you are thinking of investing in equity hybrid funds, you can compare the different funds offered in this category and choose as per your investment goals.