Stock & Bond Tango: Mastering the Mix in Hybrid Funds
17 July, 2024
Synopsis
Hybrid funds offer a balanced investment strategy by combining equities and debt instruments to aim for inflation-beating returns. These funds cater to investors with moderate risk appetite.
The HDFC Bank SmartWealth App simplifies the process of investing in hybrid funds, offering investors a user-friendly, paperless experience.
Hybrid funds have specific tax implications based on the holding period, and the percentage of equity exposure.
Friends Neha and Ravi met on the weekend to discuss about financial independence.
Neha: I'm thinking of starting investing with moderate returns without too much risk. What do you suggest?
Ravi: Hybrid funds can be a good fit!
Neha: What are Hybrid Funds?
Ravi: Hybrid funds invest in a mix of equities and debt. This balance of assets caters to moderate risk appetites. Features of a hybrid fund are:
They invest in a pre-defined mix of equities and debt instruments.
Equity allocation is anywhere between 20-80% based on the variant.
Help balance risk and return expectations for cautious investors.
Offer twin benefits of capital appreciation and stable income.
Historical data shows they have delivered inflation-beating returns.
Neha: Okay, does my money get invested across stocks and bonds?
Ravi: Exactly! This asset allocation helps reduce volatility compared to pure equity funds. You can use HDFC Bank SmartWealth App to start your investment.
Neha: Great, inflation-beating returns are my objectives, too. How to invest in hybrid mutual funds using SmartWealth?
Ravi: Investing in hybrid mutual funds is a smooth, quick, and paperless process on HDFC Bank SmartWealth:
Here are the steps to invest in hybrid mutual funds using HDFC Bank SmartWealth App:
Login to your SmartWealth account on the mobile app.
Go to 'Explore & Invest' under the 'Discover' section.
Select the 'Hybrid Funds' tile and browse funds.
Shortlist a fund based on historical performance, rating, AUM, and fund manager
Tap on 'Add’ and review or change the required details.
When ready, go to your call and tap on Place Order to complete the purchase journey.
The units will be allotted based on the next NAV.
Neha: Got it! There are so many options here. How to buy hybrid mutual funds from plethora of options?
Ravi: Start with top-rated funds first. Analyse historical returns, fund manager, etc., before deciding.
Neha: Amazing! One last thing: how are hybrid funds taxed?
Ravi: Very optimally! The equity portion enjoys equity tax benefits. The debt portion has debt fund taxation.
Investors holding hybrid funds treated as equity funds for less than a year are subject to a Short-Term Capital Gains (STCG) tax of 15%.
The applicable Long-Term Capital Gains (LTCG) tax is 10% if they hold these funds for over a year.
Neha: Great, so I get the tax efficiency of both assets! Thanks for clarifying everything. My weekend is sorted. Let me start my hybrid fund investment journey with the HDFC Bank SmartWealth App.
FAQs
Which is better, a hybrid or an equity fund?
When comparing hybrid and equity funds, it's important to consider three main types of mutual funds: Equity, Debt, and Hybrid. Equity Funds suit investors with a high-risk appetite, seeking substantial returns. Debt Funds cater to those desiring higher returns with moderate risk. On the other hand, hybrid funds appeal to investors wanting a balance, offering the "best of both worlds."
Are hybrid funds taxable?
Hybrid funds, which allocate over 65% of their assets to domestic equities, fall under the equity tax bracket. This categorization taxes short-term gains at 15%, while long-term gains attract a 10% tax.
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