Mutual Fund Investment: Why should you pick hybrid funds?

financialexpress.com:

Individuals should consider investing in hybrid funds now for capital appreciation as well as lower tax outgo. The tax efficiency from indexation benefits as well as the 20% special tax rate boosts returns and makes these funds an appealing option for those seeking a blend of stability and growth potential.

Asset management companies have launched a host of hybrid funds this month for investors to get the indexation benefit as the financial year comes to a close. As these funds put at least 35% into stocks, they qualify for the special tax rate of 20% with indexation benefit if an investor holds them for more than three years. This is a better deal than debt funds, which are taxed based on slab rates.

The interest in debt-focused hybrid funds has picked up with investors after the changes in debt taxation norms in April last year. For instance, Mahindra Manulife, Quantum Mutual Fund, HSBC Mutual Fund and Bank of India have launched multi-asset allocation funds and Parag Parikh Financial Advisory Services has launched a balanced advantage fund. All these schemes will have 35-65% equity allocation and the rest in fixed-income instruments, which will ensure indexation benefits for those who hold to the schemes for more than three years.

Nirav Karkera, head, Research, Fisdom, says these funds are a smart mix of stocks (equity) for growth and bonds (debt) for stability. “This combination helps spread out your investment risks with the steady part coming from bonds, while still giving you a chance to grow your money with stocks,” he says.

Vishwas Panjiar, partner, Nangia Andersen India, says hybrid mutual funds where the benefit of indexation is available are those with equity investment of at least 35% but below 65%. “The