With markets facing headwinds, should you turn to hybrid funds? Know which type of hybrid fund is suitable for you
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Asset allocation is the best defence in volatile markets. Diversifying across asset classes shields investors from downturns. Experts favour hybrid strategies, including multi-asset allocation, dynamic asset allocation, balanced hybrid, and equity savings funds. These strategies now face a real test. How do you choose the right hybrid fund to navigate the storm, and what can you expect from it?
Not a magic pill
The hybrid fund space has grown in popularity, especially in the past few years. This is mostly due to the unfavourable change in taxation of debt funds in Budget 2023 that sparked an exodus to more tax-friendly avenues. Most categories of hybrid funds are treated as equity funds for taxation. So gains realised after one year of holding get taxed at 12.5%, with exemption up to Rs.1.25 lakh per financial year. In debt funds, all gains are now taxed at the investor’s slab rate. This tax edge of hybrid funds has seen assets managed under this banner balloon from Rs.4.12 lakh crore in March 2023 to Rs.6.8 lakh crore as in December 2024. “The rise in popularity of hybrid funds can also be seen as part of a broader trend, where investors are increasingly seeking taxefficient, diversified investment strategies, especially in the current volatile market environment,” contends Mansi Kariya, Fund Manager, PPFAS Mutual Fund.
