As passive funds, these investments will align their portfolios with an underlying index. Mint explains how this proposal could help investors in building their portfolios. A passive hybrid fund gives more clarity to investors in terms of portfolio structure, according to experts.
“As passive funds track an index with a defined investment universe and predetermined stock and bond selection criteria, investors can clearly see where the equity and debt portions of the fund are allocated," said Vidya Bala, co-founder of primeinvestor.in. Anil Ghelani, head–passive investments and product, at DSP Mutual Fund, said an index fund or exchange-traded fund will be a low-cost option for investors to take both equity and debt exposure in one place. Sebi has proposed aligning the equity component with broad-based indices derived from the top 250 companies by market capitalization.
The debt component will stick to constant duration indices. For example, a five-year constant maturity portfolio aims to maintain an average portfolio maturity of five years at all times. It can do this by mixing government bonds of different maturities such that the portfolio’s maturity is maintained at around five years, or by holding government bonds of a five-year maturity.
Index funds with a 75% equity allocation will benefit from equity taxation rules. If such funds are held for more than one year, long-term capital gains tax rates will apply. Gains up to ₹1 lakh will be tax-free, while higher gains will be taxed at 10%.
Short-term capital gains are taxed at 15%. Balanced index funds will also receive an indexation benefit. If such a fund is held for more than three years, the gains will be taxed at 20% with an indexation benefit.
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