Best Hybrid Mutual Fund | Top Performing Hybrid Funds in India 2024 (2024)

• Hybrid funds predominantly invest in two asset classes, equity, and debt. Equity as an asset class has the potential for generating good returns and creating wealth but, at the same time, carries higher risk in terms of volatility in the shorter term. On the other hand, debt as an asset class includes interest-bearing instruments that generate regular income. Debt is a lower-risk asset class as compared to equity. Equity and Debt Asset classes have low correlation, and hence combining them reduces the portfolio risk.
• A hybrid mutual fund essentially tries to offer the best of both the asset classes in a single product. Their Equity portion generating returns when the equity markets are doing well, and the Debt portion provides a cushion for the times that the market is under-performing. It aims to offer long-term capital appreciation through equity and short-term stability and regular income through debt. Based on the objective of the fund and the market outlook, the fund manager maintains the appropriate asset allocation at all times.

Hybrid funds are very versatile and good investment options for both new and seasoned investors.

• First Time Mutual Fund Investors: Investors who are new to investing are used to the stability provided by traditional fixed income instruments like fixed deposits. They understand the growth generating capacity of the equity asset class, but, fear the risk of volatility over the short term. Hybrid Mutual Funds offer an entry into the equity market, and based on their risk profile, they can pick a subtype with the equity exposure that they are comfortable with.
• Investors with a 3-5 year investment horizon: Investors looking to invest for a medium-term goal, like buying a car, need growth but with reduced volatility. Hybrid funds provide a good option for this category of investors. That's because a part of the investment is in debt, the returns generated are relatively less volatile.
• Retired Individuals: This category of investors is looking for a regular income to replace their salaries or income that they made in the working years. Conservative hybrid funds with its unique asset allocation provide a regular income through the debt component and aim at generating a little more through their exposure in equity, which will help them tide over the inflation through the retirement period.
• Investors looking for asset allocation: These investors want a portfolio with a certain asset allocation but have not time or expertise to track the markets and manage their asset allocation. Hybrid funds are an excellent option for ready-made investment portfolios.
• Short term investors: Arbitrage funds provide a good, tax-efficient option for investors that are looking to park money in volatile market conditions over a minimum 6-month time frame. Learn How to pick the right Hybrid Fund?

A fund that has a minimum of 65% in equity or equity-oriented securities is deemed as an equity-oriented fund for the benefit of computing tax. All other schemes are deemed as Other schemes

1. Equity Oriented Schemes:

Equity-oriented hybrid funds and arbitrage funds are classified as equity-oriented funds for tax purposes. Equity schemes have a favorable taxation regime in comparison to the other schemes.

• Long Term Capital Gains: If equity mutual funds are held for more than a year, they qualify for long-term capital gains tax of 10 percent. Gains of up to ₹1 Lakh in a financial year are tax-free.
• Short Term Capital Gains: If these schemes are held for less than a year, gains are treated as short-term capital gains and are taxed at 15 percent.

2. Other Schemes:

• Long Term Capital Gains: Long-Term gains on units held for more than 36 months are taxed at the rate of 20 percent after providing for indexation.
• Short Term Capital Gains: For other schemes that are held for less than three years are treated as short-term capital gains and will be added to the income and taxed as per the income tax slab applicable to the investor.