Over the past decade, Mutual Funds have gained immense popularity amongst every kind of investor. This type of investment vehicle pools money from several investors to invest across several asset classes. Moreover, you have the option to choose from numerous Mutual Fund types that align with your investment goals, risk tolerance and investment horizon, which makes this type of investment more preferable.
Let us understand Equity Mutual Fund that gives you the benefit of two asset classes in one Fund.
Equity Hybrid Funds
To understand what Equity Hybrid Funds are, let us first understand the meaning of Hybrid Funds. Hybrid Mutual Funds pool money from investors and invest in a mix of debt and equity-related instruments and asset classes. Different types of Hybrid Funds will have a different ratio of equity to debt asset allocation. An open-ended scheme of Hybrid Fund where equity allocation is greater than debt allocation is known as Equity-oriented Hybrid Fund or simply Equity Hybrid Funds. Since the fund manager aggressively invests in high-risk equities across various market capitalisations and sectors, Equity Hybrid Funds are sometimes referred to as Aggressive Hybrid Funds.
How do Hybrid Equity Funds work?
The fund manager invests at least 65% of its total funds in equity class and equity-related instruments. The remaining funds get allocated to debt assets, debt-related instruments, and money market instruments. The allotment to equity assets classes offers long-term capital appreciation, while debt asset classes allow for a regular income source. The fund manager aims to manage your portfolio in favour of the market conditions.
What are the benefits of opting for Equity Hybrid Funds?
Ideal For Young Investors
The upside of investing in Mutual Funds is that a fund manager invests on your behalf. Fundamentally, pure equity assets are high-risk, which means they need to be managed and timed well with the market. However, equity hybrid funds are less volatile to the market fluctuation, making them better investment options for first-time investors.
Asset Allocation
In Equity Hybrid Funds, the fund manager allocates funds and keeps ready-made investment portfolios handy. This works well if you do not have the time to study the market and assess which funds are best suited for your risk appetite.
Read more about asset management here.
Regular Income
A chunk of Equity-oriented Mutual Funds gets invested in debt asset classes. Debt Funds comprise fixed-income government securities and bonds that act as a regular income source.
What should you consider before investing in Equity Mutual Funds?
Investment Horizon
Like any other Equity Fund, Hybrid Equity Funds perform well in the long haul. 3 to 5 years of investing in Equity Hybrid Funds is considered ideal for better returns.
Risk Appetite
Hybrid Funds fall between the spectrum of Equity and Debt Funds. Since these funds highly invest in Equities, you are exposed to market risk, sectoral risk, unsystematic risk, etc. Although the debt portion cushions such risk, the overall risk persists. The best Hybrid Funds are the ones that complement your risk appetite.
Taxation
Equity Hybrid Funds majorly invest in equities; therefore, the tax applicable is as per pure Equity Fund taxation norms. However, with the presence of debt securities, debt fund taxations apply as well.
Equity Portion: Gains on funds held for more than a year are Long-term Capital Gains (LTCG). LTCG exceeding INR 1 Lakh are taxed at 10% without the indexation benefit, i.e., adjusting the purchase price of the investment in line with the prevailing inflation. Gains earned within a year of holding the fund are Short-term Capital Gains (STCG). They are taxed at 15%.
Debt Portion: LTCG are gains held for more than 3 years and are taxed at 20% with indexation benefit. On the other hand, STCG are gains held for less than 3 years. They are taxed as per your Income Tax slab.
If you wish to buy Mutual Fund shares, you need a Demat Account. HDFC Bank offers you a hassle-free way to apply for this account online and from the comfort of your home.
Open Demat Account with HDFC Bank to reap benefits from Mutual Fund investments. Click here to get started!
*Terms and conditions apply. This is an information communication from HDFC Bank and should not be considered as a suggestion for investment. Investments in securities market are subject to market risks, read all the related documents carefully before investing.
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