Why hybrid mutual funds are gaining currency? | Simply Save

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So, what changed for hybrid funds after April 1 and which sub-categories are in demand? Moneycontrol talked to Chintan Haria, Principal Investment Strategist at ICICI Prudential Asset Management Company, to get some answers. Haria also shed light on why this category is in demand, which hybrid funds are seeing more traction, and how to select a hybrid fund.

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Here’s a summary of what Haria said.

• In Budget 2013, the indexation benefit was taken away from debt mutual funds. So, this meant that whatever gains you make on fresh investments, whether it is after one year, two years or six months, they will be treated as your income and added to your taxable income and charged at the marginal rate.


• The taxation change has made hybrid funds more attractive because this category allows you to participate in the equity as well as have a certain portion in debt while keeping the equity taxation provisions.


• There are a couple of hybrid funds categories that are more popular than the others. The most popular among investors is the arbitrage fund. These funds have been in India for the last 18-19 years. Here the cash futures arbitrage is done so that there is no open equity risk taken by that fund.


• Since, the fund has 65 percent in gross equity, it gets equity taxation.
  Many investors in the last 10 to 15 years have seen the benefits of participating in hybrid funds such as the dynamic asset allocation/ balance advantage fund category. They allow a good mix of equity and debt with the logic of ‘buy low and sell high without worrying too much about volatility’.


• The taxation change has also impacted investments in gold and silver exchange-traded funds (ETFs), which means that investors investing in gold and silver ETFs also incrementally not get the benefit of indexation. So, the multi asset category where equity, debt, commodities, REITs/INVITS are all added in a single fund is becoming more and more popular.


• If you're young and have a long runway of investment time, a multi-asset fund would be a good category to start with. In one single instrument, you as a youngster are getting exposure to all the possible avenues of financial investment.


• On the other hand, if someone is probably around retirement age, then probably a balanced advantage fund would be a good option along with some percentage allocated to a multi-asset fund.