Last Updated on November 20, 2023 at 7:56 am
A balanced hybrid fund is an open-ended fund that invests in equity (40-60%) and debt (40-60%) instruments. No Arbitrage would be permitted in this scheme. A reader wants to know if we can invest in balanced hybrid funds and, if yes, when.
If you are wondering why you have not heard of this type of hybrid fund, then there is a good reason for it. The SEBI MF categorization rules have a clause: “Mutual Funds will be permitted to offer either an Aggressive Hybrid fund or Balanced fund”.
Since most established AMCs already had an aggressive hybrid fund, they could not offer the balanced hybrid variant. When budget 2023 modified the debt fund taxation rules and deemed all funds holding 35% or lower equity to be taxed as per slab, AMCs could not modify their existing funds to hold more equity because of the above clause.
Until recently, as we have previously pointed out, this category had no schemes! It was left to newbie AMCs with not many funds in their portfolio to offer such a product, and we now have two new balanced hybrid funds:
Join over 32,000 readers and get free money management solutions delivered to your inbox! Subscribe to get posts via email! 🔥Enjoy massive discounts on our robo-advisory tool & courses! 🔥
- 360 ONE Balanced Hybrid Fund launched in Sep 2023
- WhiteOak Capital Balanced Hybrid Fund launched in Oct 2023
Any capital gains from units older than three years will be taxed at 20% with indexation. Gains from younger units will be taxed as per slab.
Assuming these funds typically hold 50% equity and 50 debt or thereabouts, does it make sense to invest in them?
Suppose an investor wants to invest in a balanced hybrid fund as a one-fund portfolio for medium-term or long term goals so they don’t have to worry about rebalancing. In that case, we are not enthusiastic and will not recommend it.
Yes, a 50% equity + 50% debt portfolio is an excellent choice for long-term goals, as we have shown earlier – Will Benjamin Graham’s 50% Stocks and 50% Bonds strategy work for India?
However, that does not mean I will depend on a single fund for this! Reason: Concentration risk, fund manager risk and lack of control risk, if we can coin a new phrase.
We need to control the asset allocation in our portfolio at all times, which means rebalancing and de-risking (systematic equity reduction) without worrying about tax. So, never a one-fund portfolio.
Can a balanced hybrid fund be used for a long-term goal (> 10 years) as part of a portfolio for someone who does want too much equity exposure? Yes, possibly, but the fund should be considered “equity” and supported with ample debt.
But then again, why bother when one can control risk with a lower exposure to an index fund? The adage, just because you can does not mean you should, applies nicely here!
Can a balanced hybrid fund be used for an intermediate-term goal (5-10 years)? No! It would be too risky (too much equity).
In summary, we see no compelling reason to invest in balanced hybrid funds.
🔥Enjoy massive discounts on our courses, robo-advisory tool and exclusive investor circle! 🔥& join our community of 5000+ users!
Use our Robo-advisory Tool for a start-to-finish financial plan! ⇐ More than 1,000 investors and advisors use this!
New Tool! => Track your mutual funds and stock investments with this Google Sheet!
We also publish monthly equity mutual funds, debt and hybrid mutual funds, index funds and ETF screeners and momentum, low-volatility stock screeners.
- Do you have a comment about the above article? Reach out to us on Twitter: @freefincal or @pattufreefincal
- Have a question? Subscribe to our newsletter using the form below.
- Hit 'reply' to any email from us! We do not offer personalized investment advice. We can write a detailed article without mentioning your name if you have a generic question.
Join over 32,000 readers and get free money management solutions delivered to your inbox! Subscribe to get posts via email!
About The Author
Dr M. Pattabiraman(PhD) is the founder, managing editor and primary author of freefincal. He is an associate professor at the Indian Institute of Technology, Madras. He has over ten years of experience publishing news analysis, research and financial product development. Connect with him via Twitter(X), Linkedin, or YouTube. Pattabiraman has co-authored three print books: (1) You can be rich too with goal-based investing (CNBC TV18) for DIY investors. (2) Gamechanger for young earners. (3) Chinchu Gets a Superpower! for kids. He has also written seven other free e-books on various money management topics. He is a patron and co-founder of “Fee-only India,” an organisation promoting unbiased, commission-free investment advice.Our flagship course! Learn to manage your portfolio like a pro to achieve your goals regardless of market conditions! ⇐ More than 3,000 investors and advisors are part of our exclusive community! Get clarity on how to plan for your goals and achieve the necessary corpus no matter the market condition is!! Watch the first lecture for free! One-time payment! No recurring fees! Life-long access to videos! Reduce fear, uncertainty and doubt while investing! Learn how to plan for your goals before and after retirement with confidence.
Our new course! Increase your income by getting people to pay for your skills! ⇐ More than 700 salaried employees, entrepreneurs and financial advisors are part of our exclusive community! Learn how to get people to pay for your skills! Whether you are a professional or small business owner who wants more clients via online visibility or a salaried person wanting a side income or passive income, we will show you how to achieve this by showcasing your skills and building a community that trusts and pays you! (watch 1st lecture for free). One-time payment! No recurring fees! Life-long access to videos!
Our new book for kids: “Chinchu Gets a Superpower!” is now available!
Must-read book even for adults! This is something that every parent should teach their kids right from their young age. The importance of money management and decision making based on their wants and needs. Very nicely written in simple terms. - Arun.Buy the book: Chinchu gets a superpower for your child!
How to profit from content writing: Our new ebook is for those interested in getting side income via content writing. It is available at a 50% discount for Rs. 500 only!
Do you want to check if the market is overvalued or undervalued? Use our market valuation tool (it will work with any index!), or get the Tactical Buy/Sell timing tool!
We publish monthly mutual fund screeners and momentum, low-volatility stock screeners.
About freefincal & its content policy. Freefincal is a News Media Organization dedicated to providing original analysis, reports, reviews and insights on mutual funds, stocks, investing, retirement and personal finance developments. We do so without conflict of interest and bias. Follow us on Google News. Freefincal serves more than three million readers a year (5 million page views) with articles based only on factual information and detailed analysis by its authors. All statements made will be verified with credible and knowledgeable sources before publication. Freefincal does not publish paid articles, promotions, PR, satire or opinions without data. All opinions will be inferences backed by verifiable, reproducible evidence/data. Contact information: letters {at} freefincal {dot} com (sponsored posts or paid collaborations will not be entertained)
Connect with us on social media
- Twitter @freefincal
- Subscribe to our YouTube Videos
- Posts feed via Feedburner.
Our publications
You Can Be Rich Too with Goal-Based Investing
Published by CNBC TV18, this book is meant to help you ask the right questions and seek the correct answers, and since it comes with nine online calculators, you can also create custom solutions for your lifestyle! Get it now.Gamechanger: Forget Startups, Join Corporate & Still Live the Rich Life You Want
This book is meant for young earners to get their basics right from day one! It will also help you travel to exotic places at a low cost! Get it or gift it to a young earner.Your Ultimate Guide to Travel
This is an in-depth dive into vacation planning, finding cheap flights, budget accommodation, what to do when travelling, and how travelling slowly is better financially and psychologically, with links to the web pages and hand-holding at every step. Get the pdf for Rs 300 (instant download)