Are hybrid funds ideal for long term investment?

Financial advisors emphasize on financial planning and there is a reason for them to do so. Those who have found success through investing are excellent financial planners. Do not get overwhelmed by the term ‘financial planning’ that may sound complex, it isn’t. The first step of financial planning is effective money management. If you are good with taking care of your monthly expenses with whatever you earn, you are already one step ahead of everyone. Those who lack money management should try and get hold of it before going ahead. That’s because a financial plan requires investors to determine their short term and long term goals and then pursues them to invest in such a way that they are able to get closer to their ultimate goal. But how are you going to accumulate capital for initial investment if you do not learn to save?

There are multiple investment options to choose from today in India. However, those who are entirely new to investing may find this concept a tad confusing. That’s because today there are so many financial schemes that carry almost similar traits, yet differ to a large extent. In such a scenario, if investors know their risk tolerance or their appetite for risk, making an investment decision might become simpler.

Mutual funds, ever since their introduction in the late 90s in India, have slowly gained traction among retail investors. Once considered to be the black sheep of financial markets, mutual funds today attract a lot of indirect investments in equity markets. SEBI, the regulator of mutual funds in India, describe them as, “a mechanism for pooling the resources by issuing units to the investors and investing funds in securities in accordance with objectives as disclosed in the offer document.

SEBI has further categorized mutual funds based on certain unique attributes like asset allocation, investment strategy/objective, nature of the scheme, fund size, etc. This categorization is done to make sure that investors are able to take an informed investment decision without getting confused. Some of the major mutual fund categories include, equity, debt, solution oriented, ETF, index, gold and hybrid funds.

Hybrid funds are those funds which allot a certain portion of their assets to equity as well debt. Whether a hybrid fund will invest in equity or debt will totally depend on the nature of the scheme and the risk profile that it carries.

For example, a conservative hybrid invests more in equity whereas an aggressive hybrid fund will invest more in stocks and other equity related instruments.

Are hybrid funds ideal for long term investment?

Hybrid funds are treated as equity funds when it comes to taxation on capital gains. Long term capital gains, if they are below Rs. 1 lakh are completely tax free. On the other hand, gains held for less than a year are applicable for 10 percent tax deductions. This is one of the reasons one may invest in hybrid funds for the long run. If you have a long term investment horizon, you can even start a SIP in hybrid funds. A Systematic Investment Plan is an easy and hassle free way to continue investing in mutual funds without having to worry about the daily market upheavals. One can continue investing in hybrid funds through SIP till their investment objective is achieved. Long term investors seeking capital appreciation can not only benefit from compounding, but they might be able to beat inflation and also benefit from rupee cost averaging if they start a SIP in hybrid funds.

Now that you know that it is feasible to invest in hybrid funds for the long run, plan on investing? Make sure that you do enough research about the fund before investing in it.

Mutual fund investors are subject to market risks, read all scheme related information carefully before investing.