Hybrid mutual fund schemes have drawn the interest of investors, with the category attracting over Rs 72,000 crore in the past seven months, following a change in taxation for debt funds and a significant inflow witnessed in the arbitrage category.
Typically, hybrid funds are mutual fund schemes that invest in a combination of equity and debt securities and, at times, in other asset categories such as gold.
The category has been drawing regular inflows since April 2023 after a change in taxation for debt funds that was introduced in the same month. Before that, the segment witnessed a net withdrawal of Rs 12,372 crore in March 2023.
Hybrid schemes experienced an inflow of Rs 9,907 crore in October 2023, as per the data of the Association of Mutual Funds in India (AMFI).
The category had attracted Rs 62,174 crore in the April-September phase. With this, the total inflow has touched Rs 72,081 crore in the first seven months of FY24.
Out of the Rs 72,081 crore, a substantial amount of Rs 48,978 crore inflow was witnessed in the arbitrage category, as per the data of AMFI.
Hybrid funds are attractive for investors with a moderate or low-risk appetite. These funds are suitable investment options, considering they reduce the volatility associated with participating in equity markets while simultaneously providing stability in the fixed-income market.
Analysts are of the view that investors are looking to invest a portion of their fixed-income exposure via hybrid funds after the change in taxation for debt funds.
As per the new rules introduced on April 1, 2023, debt mutual funds held for more than 36 months or three years will no longer enjoy indexation benefits. Indexation takes into account inflation during the holding period of a mutual fund unit and increases the asset’s purchase price, which subsequently reduces the tax.
The inflow has given a fillip to the Assets Under Management (AUM) of hybrid schemes by 19% to Rs 5.88 lakh crore in October-end from Rs 4.94 lakh crore in April 2023.
Rajiv is an independent editorial consultant for the last decade. Prior to this, he worked as a full-time journalist associated with various prominent print media houses. In his spare time, he loves to paint on canvas.