Re-Emergence Of Hybrid Funds

A Tax-Efficient Route to A Combination of Equity, Debt and Gold

As per the proposed amendments in the Finance Bill, 2023, income from any mutual fund investing not more than 35% of its total proceeds in the equity shares of domestic companies, shall be treated as short term capital gains on after April 01, 2023.

Against this backdrop, investors can consider hybrid funds as feasible addition to the portfolio.

Why does investing in Hybrid Funds makes more sense in the Current Scenario?

An investor, who is willing to take additional risk can consider adding hybrid funds (with a gross exposure of over 65% to equities) to his or her portfolio to get incremental exposure to debt on or after April 01, 2023. By investing in these funds, investors can benefit from tax-efficiency, as they will be taxed as equity-oriented funds.

Just like this combination equates to a stressfree experience, allocating to different asset classes helps in making an investor's investment journey less stressful! Why should an investor consider investing in Hybrid Funds? When investing in hybrid funds, investors can

As per The Income Tax Act, 1961, the taxation of capital gains for an equity-oriented fund, for an individual investor, in the short term (holding period less than equal to 12 months), the capital gains are taxed at 15% (plus applicable surcharge and cess). In the long term (holding period greater than 12 months), the capital gains are taxed at 10% (plus applicable surcharge and cess) for gains exceeding INR 1 lakh.

Since the tax levied on the capital gains will be at the investor's personal income tax rate for investments in debt funds on or after April 01, 2023, getting incremental exposure in debt through hybrid funds can be a more tax-efficient route for an individual investor.