Hybrid mutual fund schemes are slowly catching investor fancy: Should you go for it?

Hybrid mutual fund schemes are slowly catching investor fancy: Should you go for it?

Hybrid mutual fund schemes have been gaining popularity among investors, attracting Rs 20,634 crore in January, marking a 37 per cent surge from the previous month, largely due to their appeal as an alternative investment option post-change in taxation laws for debt funds.

With this, total inflow in the category reached Rs 1.21 lakh crore in the April-January period of the current financial year (FY24).

However, hybrid schemes saw outflow in the same period of the preceding financial year.

Hybrid funds are mutual fund schemes that typically invest in a combination of equity and debt securities and sometimes in other asset categories such as gold.

The category has been attracting regular inflows since April 2023, after a change in taxation for debt funds that kicked off in the same month. Before that, the segment saw a net withdrawal of Rs 12,372 crore in March last year.

According to the latest data with the Association of Mutual Funds in India (Amfi), hybrid schemes witnessed an inflow of Rs 20,637 crore in January, which was higher than Rs 15,009 crore inflow seen in December.

The two categories of hybrid funds that attracted most funds during the month under review are arbitrage funds and multi-asset allocation funds.

Out of the Rs 20,637 crore inflow in hybrid funds in January, arbitrage funds witnessed an inflow of Rs 10,608 crore, while for multi-asset allocation funds it was Rs 7,080 crore.

Moreover, around 50 per cent to 70 per cent of the allocation in the hybrid category has been going towards arbitrage funds in the last six months.

“The main reason for the increase in flows in this category is that they are being looked at as an alternative post-change in tax laws.

“Currently, arbitrage funds are sitting at a spread of around 8 per cent making it an attractive investment opportunity, especially on a post-tax basis,” Feroze Azeez, Deputy CEO, Anand Rathi Wealth Ltd, said.

Besides, the multi-asset category, offering easy diversification, has become the investors’ choice.

In terms of folios, the segment added 3.36 lakh hybrid folios in the month under review, taking the total to 1.31 crore, representing a share of 7.7 per cent on the total folios of 16.95 crore.

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