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Tata Capital > Blog > Wealth Services > All You Need to Know About Balanced Hybrid Fund

Wealth Services

All You Need to Know About Balanced Hybrid Fund

All You Need to Know About Balanced Hybrid Fund

Imagine a world where your investments offer you the best of both worlds – the safety of debt asset class as well as the high returns of equity asset class. A world where you can invest in mutual funds for both capital appreciation and capital protection. Now you can, with the enticing realm of Balanced Hybrid Funds.

Investors looking to diversify their portfolio with a mix of asset classes can consider investing in a single scheme with balanced hybrid funds. These funds invest in debt and equity securities to offer their investors the perfect balance between risk-reward ratio.

This blog will explore everything you need to know about balanced hybrid funds.

What are balanced hybrid funds?

A Balanced Hybrid Fund is an open-ended scheme that bridges the gap between equity and debt investments. These funds offer investors a diversified portfolio by investing in a mix of equities and fixed-income securities like stocks and corporate bonds in a specific ratio.

As per SEBI, the percentage of equity investment in a balanced hybrid fund must be between 40% and 60% of the total assets, with the balance being invested in debt instruments. Moreover, the mutual fund can reshuffle the portfolio based on its risk profile and investment strategy.

How does a balanced hybrid fund work?

At its core, balanced hybrid funds balance the risk and potential returns of the investment by investing in equity for capital appreciation and debt for stability. The allocation is based on a pre-decided ratio with some flexibility to change the composition depending on the market conditions.

Moreover, balanced hybrid funds are designed in a way to rebalance the portfolio automatically in a fluctuating market to retain the fund's performance. This makes it perfect for investors seeking high returns at low risk and diversification of portfolio.

Tax implications of balanced hybrid funds

  • As balanced hybrid fund invest 40% to 60% in equity and rest in debt the short-term capital gains are taxed as per the individual's tax slab rate for investments held for less than 36 months.

However, if the investments are held for more than 3 years, long-term capital gains are applicable at 20% with indexation benefits.

Advantages of balanced hybrid funds

Here are a few advantages of investing in balanced hybrid funds-

1. Diversification: By investing in equities and debt, these funds spread the risk across various asset classes, reducing the impact of market volatility on your portfolio.

2. Rebalancing: Since balanced hybrid funds invest in two asset classes, you don't have to worry about the market behaviour affecting your funds. In the case when the equity or debt market is overvalued, the fund manager will rebalance the investment composition between these asset classes to manage the risk and offer better returns.

3. Lower risk and moderate returns: Investing solely in equity instruments can be risky during a market crash. On the other hand, while debt instruments are safer, they don't perform well in a bull market. Thus, balanced hybrid funds bring you the best of both: the stability of debt securities and the wealth-creation features of equity stocks.

4. Lower Tax: Balanced Hybrid fund offers lower LTCG tax with indexation benefit compared to other pure fixed income products.

In conclusion

Balanced Hybrid Funds can be a valuable addition to your investment portfolio, offering diversification, stability, and the potential for reasonable returns. Depending on your risk appetite and financial goals, you can invest in balanced hybrid funds to enjoy risk-adjusted returns and a hedge against inflation.

To start your journey towards financial prosperity, consider exploring Balanced Hybrid Funds through Tata Capital Wealth. With access to expert advice and a range of investment options, Tata Capital Wealth can help you achieve your financial goals and secure your future.

Explore our website to learn more about our financial services.

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