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Mutual Funds - Details, Types, Benefits, Options & More

Investors might not have the time to analyse the performance of their MF investment. To make things simpler, MF houses provide investors with regular statements which makes it easy to track the performance of the fund(s).

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What are Mutual Funds ?

Mutual funds Definition: How can I benefit by investing in Mutual Funds?

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Types of Mutual Funds ?

Mutual Funds are broadly classified into Debt, Equity, Hybrid, and tax-saving funds. You can choose the fund(s) based on your investment portfolio.

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Benefits of Mutual Funds ?

Investing in Mutual Funds with calculated risk offers higher returns than conventional options like PPF, NSC, and FDs.

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How to Invest in Mutual Funds ?

Set a financial goal and then choose the right Mutual Fund to achieve it.

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​Types of Mutual Funds

Mutual funds are broadly classified into three categories based on their investment traits and risks involved. Understand all mutual fund types and analyse them to check if your requirements would be served by investing in a particular type of mutual fund. Following are the types of mutual funds:

Equity Funds

Equity funds primarily invest in shares of different companies. Your equity funds investment would make a profit when the share prices surge, while they suffer a loss when the share prices fall. Investing in equity funds is apt for those who stay invested for an extended period and are comfortable with moderate to high risk.

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Debt Funds

Debt funds primarily invest in fixed income government securities such as treasury bills and bonds, or reputed corporate deposits. Investing in debt funds is less risky than equity funds. Debt Funds are apt for those who are risk-averse and looking for a short-term investment.

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Balanced or Hybrid Funds

As the name suggests, balanced or hybrid funds invest in both equity and debt instruments to balance the risk and maintain a specific rate of return. The fund manager decides the ratio to reap the best of both debt and equity instruments.

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​1. What is a Mutual Fund?

A mutual fund is a professionally managed investment scheme. It is run by an asset management company (AMC) which acts like a mediator for the retail investors. The AMC pools in money from a large number of investors and invests it in equity shares, bonds, money market instruments and other types of securities. Each investor, in return, is assigned a specific number of units proportionate to his invested amount in the fund. The investor is known as the unitholder. The unitholder shares the gains, losses, income and expenses of the fund in proportion to his investment in the fund.

Mutual Funds : TAXAJ provides the Complete Guide to Mutual Funds, Types of Mutual Funds, Best Funds to invest during COVID-19, Mutual Funds Calculator, Fund Offers, Nav’s, Information, and Latest News

A Mutual Fund (MF) is formed when capital collected by various investors is invested in purchasing company shares, stocks, or bonds. Shared by thousands of investors, mutual funds investments are collectively managed by a professional fund manager to earn the highest possible returns. This is how mutual funds work, not only in India but, anywhere in the world.

​2. How do Mutual Funds work ?

The fund manager manages your mutual fund plan. He frames the investment strategies based on the investment objectives of the fund. The fund manager tracks the fund portfolio daily and decides when to buy/sell the shares of the underlying asset class. As a mutual fund investor, your mutual fund units depict your part of holdings in a specific scheme. These units are valued at Net Asset Value (NAV) which is determined at the end of every day. The NAV keeps fluctuating according to changes in the prices of fund’s holdings. A unitholder can purchase or redeem the units as per the prevailing NAV. He participates proportionally in the gain or loss of the fund. SEBI is the regulator of all the mutual funds in India. It formulates the fund provisions keeping the interests of the investor in mind

​3. How to invest in Mutual Funds ?

There are various avenues from where you can buy mutual fund units:

1. Direct Plans: You can approach the asset management company (AMC) and invest in direct plan of your choice. These plans have low expense ratio because they don’t charge distributor commission. Hence, you can earn a better rate of return

Visit the nearest branch of the fund house to collect an application form or download it from the web. You must go through the fine print carefully and clear all your doubts before investing.

2.MF Distributor: You can contact a registered mutual fund distributor. He will help you out to complete the required documentation. You will be investing in a regular plan which will charge a distributor’s commission.

These are sales professionals who reach out to potential customers and inform them about the various fund options. You can choose a fund based on your income, investment goal, and risk appetite. The agent helps you with the application process, transactions, redemption, and cancellation. They charge a commission for their services.

3.Online: There are a number of third-party portals available online. You can visit one of them and invest in a variety of mutual funds by paying a nominal fee. Buying/selling MF units online is common today. This helps in saving time and efforts, and most importantly, makes it easier to compare various funds to make an informed decision. TAXAJ is one such portal that handpicks the best Mutual Funds from the country’s top fund houses for you, absolutely free of cost. All you need to do is enter your personal details and make the payment. The entire process can be done in less than five minutes.

​4. What are the nature of Investments ?

There are two ways of investing money in your favourite mutual funds. You can either invest through a SIP or invest a lump sum amount.

1. Lump sum investment: Here, you spend a considerable portion of your disposable funds in a mutual fund scheme of your choice. It generally happens when you receive a massive corpus from the sale of an asset or retirement benefits. However, investing a lump sum involves higher risk. That’s why it is always recommended to go via the SIP route.

2. Systematic Investment Plan (SIP):Under a SIP, you instruct the bank to deduct a fixed sum from your savings account every month and invest it in the said mutual fund scheme. In this way, you can buy units continuously without worrying about the right time to enter the market. You can also get the benefit of rupee cost averaging and enjoy the power of compounding.


​5. How does a Mutual Fund Calculator work ?

Is your mutual fund scheme generating returns in line with your expectation? Are you wondering what amount of SIP would help you in personal goal accomplishment? Get your answers by using our Mutual Fund Calculator! The Mutual Fund Calculator will give you the investment value at maturity by calculating fund returns according to your investment horizon. You can adjust the variables of the calculator such as SIP/lump sum, amount of investment, frequency of SIP, the expected rate of returns, and the duration of SIP.

​6. What are the Benefits of Mutual Funds ?

Expert Money Management


Mutual fund companies have fund managers to choose the company shares, sectors, and debt papers in which the pooled mutual fund investment would be invested. This decision would be made by keeping the investors’ interest in mind.

Lock in Period


The Lock-in period is the duration in which investors cannot withdraw their Mutual Fund investment or sell their Mutual Fund units. It varies across Mutual Funds. Generally, open-ended funds do not have a lock-in period while the tax-saving funds (ELSS) have a lock-in period of 3 years.

Low Cost


Mutual funds investment is a very affordable option for those who wish to invest in small amounts. MF houses levy a small fee called expense ratio, and it ranges from 0.5% to 1.5% of the Mutual Fund investment. The expense ratio cannot exceed 2.5% as per SEBI regulations.

SIP Option


If you don’t have a lump sum to invest, then you can invest in a Systematic Investment Plan (SIP). Our experts at TAXAJ have handpicked best mutual fund to invest based on your requirements. The best thing about investing in mutual funds with TAXAJ is that you can invest as low as Rs 500 an instalment.

Flexibility to Switch Funds


A good investor knows when to switch funds to keep up or stay ahead of the market. There are various MF schemes that allow you to switch funds. The fund manager will have an eye on the market to ensure the best returns while not getting burnt by the market volatility.

Invest Based on Goals & Focus


Each investor invests in MF with a financial goal to achieve. There are funds with varying risk factors that help you in achieving all kinds of goals.

Diversification


MF's invest across various asset classes and company shares to mitigate risk. When one asset class underperforms, gains from other asset classes will negate the loss. However, it is recommended not to invest in too many as it may get difficult to monitor the performance of all avenues.

Flexible Tenure


Equity-linked savings scheme (ELSS) is the only MF scheme that comes with a lock-in period of three years. This gives investors enough flexibility in terms of their financial goals, whether short-term or long-term. Investing over a certain timeframe makes it easier to plan when and how to invest.

Liquidity


Investing in Mutual Funds offer liquidity. You are allowed to redeem your investment at any time. There is no requirement of justifying your decision or searching for a buyer. You just have to place a request with your fund house and they will credit the money into your bank account within 3-7 working days.

Handpicked Funds


There are various MF's based on investment goals, individual risk appetite, sectors, and fund size, among others. Considering the number of available options, it can be a difficult task to research and compare the performance of various funds. TAXAJ has handpicked best mutual fund which suits your profile.

Tax Efficiency


Investing in ELSS offers a twin benefit of tax deductions and wealth accumulation. Investments in ELSS are eligible for tax deductions under Section 80C of the Income Tax Act, 1961. You can deduct a maximum of Rs 1,50,000 a year. ELSS offers the highest returns among all Section 80C instruments.

Investment Safety


All MF houses are under the purview of the Securities and Exchange Board of India (SEBI) and the Association of Mutual Funds in India (AMFI). Both SEBI and AMFI are government bodies and hence, you can consider your Mutual Fund investments to be as safe as bank deposits.

​Equity Fund : Basics, Types, Benefits and More

1. What is an Equity Fund?

Equity mutual funds try generating high returns by investing in the stocks of companies across all market capitalisations. Equity mutual funds are the riskiest class of mutual funds, and hence, they have the potential to provide higher returns than debt and hybrid funds. The performance of the company plays a significant role in deciding the investors’ returns.

2. How do Equity Funds work?

Equity mutual funds invest at least 60% of their assets in equity shares of numerous companies in suitable proportions. The asset allocation will be in line with the investment objective. The asset allocation can be made purely in stocks of large-cap, mid-cap, or small-cap companies, depending on the market conditions. The investing style may be value-oriented or growth-oriented.
After allocating a significant portion towards the equity segment, the remaining amount may go into debt and money market instruments. This is to take care of sudden redemption requests as well as bring down the risk level to some extent. The fund manager makes buying or selling decisions to take advantage of the changing market movements and reap maximum returns.

3. Who should Invest in Equity Funds?

Your decision to invest in equity funds must be in sync with your risk profile, investment horizon, and objectives. Generally, if you have a long-term goal (say, five years or more), then it is better to invest in equity funds. It will also give the fund much needed time to combat market fluctuations.

a. For budding investors

If you are an aspiring investor who wants to have exposure to the stock market, then large-cap equity funds may be the right choice. These funds invest in equity shares of the top-performing companies whose risk level is low. The well-established companies have historically delivered stable returns over a long period.

b. For market savvy investors

If you are well-versed with the market pulse and willing to take calculated risks, then you may think of investing in diversified equity funds. These invest in shares of companies across all market capitalisations. These funds provide an excellent combination of high returns at lower risk as compared to equity funds that only invest in small-cap/mid-caps.

 

4. Features of Equity Funds

a. Cost of investment

The frequent buying and selling of equity shares often impact the expense ratio of equity funds. The Securities and Exchange Board of India (SEBI) has capped the expense ratio at 2.5% for equity funds. A lower expense ratio will translate into higher returns for investors.

b. Holding period

Investors earn capital gains on the redemption of their fund units. The capital gains are taxable in the hands of investors. The rate of taxation depends on how long one stays invested and this period is called the holding period. Equity holdings of less than one year are termed short-term, and short-term capital gains are taxed at 15%. Equity holding of more than a year are termed long-term, and the long-term capital gains are taxed at the rate of 10% if the gains exceed Rs 1 lakh a year.

c. Cost-efficiency & diversification

By investing in equity funds, you get exposure to several stocks, and you get this benefit by investing a nominal amount. However, your portfolio will face the risk of concentration.

5. Types of Equity Funds

You can categorise equity funds based on the investment mandate and the kind of stocks and sectors they invest in.
 
a. Based on Sector and Themes

Equity funds that focus investments on a particular sector or theme fall under this category. Sector funds invest in a specific industry such as FMCG, pharma, or technology. Thematic funds follow one specific subject, such as emerging consumer companies or international stocks.

As sector funds and thematic funds focus on a particular sector or theme, they tend to be riskier. This is because of their performance face sectoral as well as market risks. However, industry and thematic funds can be diversified in terms of market capitalisation.

b. Based on Market Capitalisation

Large-cap equity funds: Large-cap companies are well-established, and hence, large-cap funds are capable of offering stable returns.

Mid-cap equity funds: These funds invest in medium-sized companies. Mid-cap equity funds are not as stable as large-cap funds.

Mid-and-small-cap funds: These funds invest in both mid-cap and small-cap funds and have the potential to offer high returns.  

Small-cap funds: These funds invest in shares of small-cap funds. Investors should be aware of the fact that small-cap funds are more prone to market volatility and risk.

Multi-cap funds: Multi-cap funds invest in stocks across all market capitalisations. The fund manager decides to invest predominantly in a particular capitalisation depending on the market condition..

C. Based on Investment Style 

All the funds discussed above follow active investing style, wherein the fund manager decides the portfolio composition. However, there are funds whose portfolio composition imitate a specific index.

Equity funds that follow a particular index, such as Sensex, are called index funds. These are passively-managed funds that invest in the same companies, in the equal proportions, making up the index the fund follows.
For example, a Sensex index fund will invest in all Sensex companies in the same proportion in which the companies form part of the index. Index funds are low-cost funds as they don’t require the active management of a fund manager.

Example, a Sensex index fund will have investments in all 30 Sensex companies in the same proportion in which the companies form part of the index. Index funds are low-cost funds as they don’t require the active management of a fund manager.

6. Performance of Equity Funds in India

Among all categories of mutual funds, equity funds generally deliver the highest returns. On average, equity funds have generated returns in the range of 10% to 12%. The returns fluctuate depending on the market movement and overall economic conditions.

To earn returns in line with your expectations, you need to choose your equity funds carefully. For that, you have to strictly follow the stock markets and possess knowledge of the quantitative and qualitative factors. TAXAJ assists by handpicking the top-performing investment portfolios for you, which suits your financial goals.

7. Benefits of Investing in Equity Funds

The benefits of investing in mutual funds are many:

a. Expert money management

b. Low Cost

c. Convenience

d. Diversification

e. Systematic investments

f. Flexibility

g. Liquidity

The primary benefit of investing in equity funds is that you don’t need to worry about choosing stocks and sectors to invest. Successful equity investing requires a lot of research and knowledge. You need to understand and analyse the performance of a company before you decide to invest.

You also need to have an understanding of how a particular sector is expected to perform in the future. Of course, all of this requires a lot of time and effort, which most individuals don’t have. Hence, the solution is to leave the stock-picking to an expert fund manager by investing in an equity mutual fund.

 

8. Taxation of Equity Funds

As mentioned earlier, short-term capital gains (STCG) are taxable at the rate of 15%.
The Union Budget 2018-19 brought back the long-term capital gains (LTCG) tax on equity holdings. It is applicable at the rate of 10% if the gains exceed Rs 1 lakh a year.

9. SIP or Lumpsum- which is better? 

a. Lump-Sum

Lump sum investments are apt for those individuals who have a considerable sum to invest. However, not many investors invest via the lump sum route.

A SIP allows you to invest a fixed sum on a period basis. The frequency of SIP can be weekly, monthly, and quarterly. You give a mandate to the fund company to deduct the investment from your bank account.

SIPs give you the benefit of rupee cost averaging. This means that when the markets are high, you will be allotted fewer units. And when the markets are low, you will get more units for the same amount. This way, you invest at different levels of the market. SIPs also inculcate financial discipline and make mutual funds affordable for all.

​Debt Funds : Basics, Types, Benefits and MoreDebt Funds : Basics, Types, Benefits and More

1. What is a Debt Fund?

Buying a debt can be considered as lending money on loan to the issuing entity. A debt fund invests in fixed-interest generating securities such as corporate bonds, government securities, treasury bills, commercial paper and other money market instruments. The fundamental reason for investing in debt funds is to earn interest income and capital appreciation. The issuers of debt instruments pre-decide the interest rate you will receive as well as the maturity period. Hence, they are also known as ‘fixed-income’ securities.

2. How do Debt Funds work?

Debt funds invest in various securities, based on their credit ratings. A security’s credit rating signifies whether the issuer will default in disbursing the returns they promised. The fund manager of a debt fund ensures that he invests in high rated credit instruments. A higher credit rating means that the entity is more likely to pay interest on the debt security regularly as well as pay back the principal amount upon maturity.

Debt funds which invest in higher-rated securities are less volatile when compared to that of low-rated securities. Additionally, maturity also depends on the investment strategy of the fund manager and the overall interest rate regime in the economy. A falling interest rate regime encourages the fund manager to invest in long-term securities. Conversely, a rising interest rate regime encourages him to invest in short-term securities.

3. Who should invest in Debt Funds?

Debt funds try to optimise returns by investing across all classes of securities. This allows debt funds to earn decent returns. However, the returns are not guaranteed. Debt fund returns often fall in a predictable range. This makes them safer avenues for conservative investors. They are also suitable for people with both short-term and medium-term investment horizons. Short-term ranges from 3 months to 1 year, while medium-term ranges from 3 years to 5 years.

a. Short-term debt funds

For a short-term investor, debt funds like liquid funds may be an ideal investment, compared to keeping your money in a saving bank account. Liquid funds offer higher returns in the range of 7%-9% along with similar kind of liquidity to meet emergency requirements.

b. Medium-term debt funds

For a medium-term investor, debt funds like dynamic bond funds are ideal for riding the interest rate volatility. When compared to 5-year bank FDs, debt bond funds offer higher returns. If you are looking to earn a regular income from your investments, then Monthly Income Plans may are a good option.

4. Types of Debt Funds

As mentioned above, there are many types of debt mutual funds, suiting diverse investors. The primary differentiating factor between debt funds is the maturity period of the instruments that they invest in. Following are the different types of debt funds:

a. Dynamic Bond Funds

As the name suggests, these are ‘dynamic’ funds. Meaning, the fund manager keeps changing portfolio composition as per the fluctuating interest rate regime. Dynamic bond funds have different average maturity period as these funds take interest rate calls and invest in instruments of longer and as well as shorter maturities.

b. Income Funds

Income Funds take a call on the interest rates and invest predominantly in debt securities with extended maturities. This makes them more stable than dynamic bond funds. The average maturity of income funds is around 5-6 years.

c. Short-Term and Ultra Short-Term Debt Funds

These are debt funds that invest in instruments with shorter maturities, ranging from 1 to 3 years. Short-term funds are ideal for conservative investors as these funds are not affected much by interest rate movements.

d. Liquid Funds

Liquid funds invest in debt instruments with a maturity of not more than 91 days. This makes them almost risk-free. Liquid funds have rarely seen negative returns. These funds are better alternatives to savings bank accounts as they provide similar liquidity with higher returns. Many mutual fund companies offer instant redemption on liquid fund investments through unique debt cards.

e. Gilt Funds

Gilt Funds invest in only government securities – high-rated securities with very low credit risk. Since the government seldom defaults on the loan it takes in the form of debt instruments; gilt funds are an ideal choice for risk-averse fixed-income investors.

f. Credit Opportunities Funds

These are relatively newer debt funds. Unlike other debt funds, credit opportunities funds do not invest as per the maturities of debt instruments. These funds try to earn higher returns by taking a call on credit risks or by holding lower-rated bonds that come with higher interest rates. Credit opportunities funds are relatively riskier debt funds.

g. Fixed Maturity Plans

Fixed maturity plans (FMP) are closed-ended debt funds. These funds also invest in fixed income securities such as corporate bonds and government securities. All FMPs have a fixed horizon for which your money will be locked-in. This horizon can be in months or years. However, you can invest only during the initial offer period. It is like a fixed deposit that can deliver superior, tax-efficient returns but does not guarantee high returns.

5. Things to consider as an investor

a. Risk

Debt funds suffer from credit risk and interest rate risk, which makes them riskier than bank FDs. In credit risk, the fund manager may invest in low-credit rated securities which have a higher probability of default. In interest rate risk, the bond prices may fall due to an increase in the interest rates.

b. Return

Even though debt funds are fixed-income havens, they don’t offer guaranteed returns. The Net Asset Value (NAV) of a debt fund tends to fall with a rise in the overall interest rates in the economy. Hence, they are suitable for a falling interest rate regime.

c. Cost

Debt fund managers charge a fee to manage your money called an expense ratio. SEBI has mandated the upper limit of expense ratio to be no more than 2.25% of the overall assets. Considering the lower returns generated by debt fund as compared to equity funds, a long-term holding period would help in recovering the money forgone through expense ratio.

d. Investment Horizon

If you have a short-term investment horizon of 3 months to 1 year, then you may go for liquid funds. Conversely, typical tenures for short-term bond funds can be 2 to 3 years. In case of an intermediate horizon of 3 to 5 years, dynamic bond funds would be appropriate. Basically, the longer the horizon, the better the returns.

e. Financial Goals

You can use debt funds as an alternative source of income to supplement your income from salary. Additionally, budding investors can invest some portion in debt funds for liquidity. Retirees may invest the bulk of retirement benefits in a debt fund to receive a pension.

f. Tax on Gains

Capital gains from debt funds are taxable. The rate of taxation is based on the holding period, i.e., how long you stay invested in a debt fund. A capital gain made during a period of fewer than three years is known as a Short-term Capital Gain (STCG). A capital gain made over three years or more is known as Long-term Capital Gains (LTCG). Investors can add STCG from debt funds to his/her income. Here, the tax is as per the income slab. A fixed 20% tax after indexation applies for STCG from debt funds.

6. How to invest in Debt Funds?

Investing in Debt Funds is made paperless and hassle-free at TAXAJ. The following steps will help you start your investment journey:

  • Log on to taxaj.com
  • Enter all requested details
  • Enter the investment details (investment amount and maturity period)
  • Complete your e-KYC, and it takes less not more than 5 minutes
  • Invest in a suitable plan among the hand-picked debt funds

7. Top 5 Debt Funds in India

There are various quantitative and qualitative parameters to determine the best debt funds as per your requirements. Additionally, it would be best if you keep your financial goals, risk appetite and investment horizon in mind. The following table represents the top 5 debt funds in India, based on the past year returns. Investors may choose the funds with different investment horizon like five years or ten years returns. You may include other criteria like financial ratios as well.

​Hybrid Funds : Basics, Types, Benefits and More

1.What is a Hybrid Fund?

Hybrid funds invest in both debt and equity instruments to achieve diversification and avoid the concentration risk. A perfect blend of the two offers higher returns than a regular debt fund while not being as risky as equity funds. The choice of a hybrid fund depends on your risk preferences and investment objective.

2.How Do Hybrid Funds Work?

Hybrid funds aim to achieve wealth appreciation in the long-run and generate income in the short-run via a balanced portfolio. The fund manager allocates your money in varying proportions in equity and debt based on the investment objective of the fund. The fund manager may buy/sell securities to take advantage of market movements.

3.Who Should Invest in Hybrid Funds?

Hybrid funds are considered a safer bet than equity funds. These provide higher returns than genuine debt funds and are popular among conservative investors. Budding investors who are willing to get exposure to equity markets may invest in hybrid funds. The presence of equity components in the portfolio offers the potential to earn higher returns.

At the same time, the debt component of the fund provides a cushion against extreme market fluctuations. In this way, you receive stable returns instead of a total burnout that may happen in case of pure equity funds. For the less conservative category of investors, the dynamic asset allocation feature of some hybrid funds becomes a great way to enjoy the best out of market fluctuations.

4.Types of Hybrid Funds

Hybrid funds are further classified based on their asset allocation. Some hybrid funds have a higher equity allocation, while others allocate more towards debt. Let’s have a look in detail:

a. Equity-oriented hybrid funds

If the fund manager invests more than 65% of the fund’s assets in equity and the rest in debt and money market instruments, then it’s called an equity-oriented fund. The equity component of the fund comprises of equity shares of companies across industries such as FMCG, finance, healthcare, real estate, automobile, and so on.

b. Debt-oriented balanced funds

A hybrid fund is termed as a debt-oriented fund if the fund manager allocates more than 65% towards debt instruments. The debt component of the fund constitutes the investment in fixed-income havens such as government securities, debentures, bonds, treasury bills, and so on. For the sake of liquidity, some part of the fund would also be invested in cash and cash equivalents.

c. Monthly Income Plans

These are hybrid funds that invest predominantly in debt instruments. A monthly income plan (MIP) would generally have 15-20% exposure to equities. This would allow it to generate higher returns than regular debt funds. MIPs provide regular income to the investor in the form of dividends. Investors can choose the frequency of dividends payout; it can be monthly, quarterly, half-yearly, or annually.

MIPs also come with the growth option – they let the investments grow in the fund’s corpus. Hence, an MIP is not a small monthly income investment. Do not let the name mislead you. They are hybrid funds that invest mostly in debt and some amount of equities.

d. Arbitrage Funds

An arbitrage fund manager tries to maximise returns by buying the stock at a lower price in one market. He then sells it at a higher price in another market.

However, arbitrage opportunities are not always available quickly. In the absence of arbitrage opportunities, these funds might stick to debt instruments or cash. By design, arbitrage funds are relatively safer, like most debt funds. But its long-term capital gains are taxable like that of any equity fund.

5. Things an Investor Should Consider

a. Risk factor

It would not be wise to assume hybrid funds to be completely risk-free. Any instrument which invests in equity markets will have some risk. It might be less risky than pure equity funds, but you need to exercise caution and portfolio rebalancing regularly.

b. Return

Hybrid funds don’t offer guaranteed returns. The performance of underlying securities affects the Net Asset Value (NAV) of these funds. So, it may fluctuate due to market movements. Moreover, these might not declare dividends during market downturns.

c. Cost

Hybrid funds would charge a fee for managing your portfolio, which is known as the expense ratio. Before investing in a hybrid fund, ensure it has a low expense ratio than other competing funds, and this translates into higher take-home returns for the investor.

d. Investment Horizon

Hybrid funds may be ideal for a medium-term investment horizon, say five years. If you want to earn a risk-free rate of return, you may go for arbitrage funds. They bet on price differentials of securities in different markets.

e. Financial Goals

You can meet intermediate financial goals like buying a car or funding higher education with hybrid funds. Retirees too invest in balanced funds and go for a dividend option to supplement their post-retirement income.

f. Tax on Gains

The equity component of hybrid funds is taxed like equity funds. Long-term capital gains over Rs.1 lakh on equity component are taxed at the rate of 10%. Short-term capital gains (STCG) on equity component are taxed at the rate of 15%.

The debt component of hybrid funds is taxable as any other debt fund. You must add these gains to your income and taxed as per your income slab. LTCG from debt component is taxable at 20% after indexation and 10% without the benefit of indexation.

6. How to Invest in Hybrid Funds?

You can invest in hybrid funds in a paperless and hassle-free manner at TAXAJ. Using the following steps, you can start your investment journey:
1: Sign up for an account at taxaj.com
2: Provide all the requested details
3: Get your e-KYC done, this can be completed in less than 5 minutes
4: Invest in your preferred hybrid fund from amongst the hand-picked mutual funds

Frequently Asked Questions

What is Mutual Fund?
A Mutual Fund (MF) is formed when capital collected by various investors is invested in purchasing company shares, stocks, or bonds. Shared by thousands of investors, mutual funds investments are collectively managed by a professional fund manager to earn the highest possible returns. This is how mutual funds work, not only in India but, anywhere in the world.

What is SIP?
Systematic Investment Plan (SIP) is an investment option offered by MFs which allows investors to invest small amounts on a regularly instead of investing a lump sum. Your frequency of investment can be weekly, monthly, or quarterly.

How to choose the right Mutual Fund?
A right MF scheme can be chosen only by considering past returns, the fund manager’s performance, and consistency of returns. If you are finding it difficult to choose the right MF, then reach out to us. You can invest in top mutual funds in India, handpicked by our in-house experts.

How to redeem Mutual Fund units?
You can redeem MF units anytime. You need to inform your fund house or the agent. Your money will be credited into your bank account within 3- 7 working days, post-redemption.

What is the time period considered for the purpose of Income Tax
Income Tax is levied on the annual income of taxpayers. It is levied based on the income you earn in each financial year (1 April of this year till 31 March of the next year) and not the calendar year. The previous year is a period for which a person has to pay tax. Assessment year is a 12 month period following the previous year, during which a taxpayer files his/her ITR.

What is CRISIL MF ranking?
CRISIL is an analytical company, which provides rankings, research, and advisory services. MF rankings given by CRISIL is based on global factors. The rankings are a significant factor to be considered when choosing to invest in an MF scheme.

Which are the best equity mutual funds?
To term any MF scheme ‘the best’, you need to check if it’s investment objectives are in line with your requirements and investment horizon. If an MF scheme is suitable for your requirements, then you can consider it as the best MF option for you.

The following table shows the top equity funds based on the past five-year return:

Equity Fund Name

5-year Returns

Mirae Asset Emerging Bluechip Fund – GrowthLarge & Mid Cap Fund

18.92%

Franklin Build India Fund – GrowthSectoral/Thematic

14.11%

HDFC Small Cap Fund – GrowthSmall Cap Fund

12.98%

Sundaram Rural and Consumption Fund – GrowthSectoral/Thematic

12.69%

Axis Midcap Fund – GrowthMid Cap Fund

11.79%

DSP Natural Resources and New Energy Fund – Regular Plan – GrowthSectoral/Thematic

11.70%


Which are the best debt mutual funds?
The following table shows the top debt funds based on the past five-year return:

Top Debt Funds

5-year Returns

Edelweiss Government Securities Fund – Regular Plan – GrowthGilt Fund

10.27%

DHFL Pramerica Dynamic Bond Fund – GrowthDynamic Bond Fund

9.58%

Reliance Income Fund – GrowthMedium to Long Duration Fund

8.92%

Aditya Birla Sun Life Floating Rate Fund – Regular Plan – GrowthFloater Fund

8.40%

Axis Banking & PSU Debt Fund – GrowthBanking and PSU Fund

8.36%


Which are the best hybrid mutual funds?

Balanced Fund Name

3 Years

ICICI Prudential Equity and Debt Fund – Direct Plan Growth

11.04%

Mirae Asset Hybrid – Equity – GrowthAggressive Hybrid Fund

10.77%

Principal Hybrid Equity Fund – GrowthAggressive Hybrid Fund

10.64%

SBI Equity Hybrid Fund – Regular Plan – GrowthAggressive Hybrid Fund

9.51%