The balanced hybrid fund category has emerged from dormancy following recent regulatory changes that have significantly improved its tax treatment. According to Business Standard, the category had remained on the sidelines since Sebi's 2017 scheme categorisation exercise, which required fund houses to choose between launching an aggressive hybrid fund and a balanced hybrid fund. Most fund houses opted for aggressive hybrid schemes as they maintain at least 65% equity exposure, allowing them to qualify as equity-oriented funds for tax purposes. However, the 2024 overhaul of capital gains taxation has narrowed the tax disadvantage - long-term capital gains on balanced hybrid funds are now taxed at 12.5% after a two-year holding period, aligning the tax rate with equity funds, although the qualifying holding period is longer than the one year required for equity schemes. As per Business Standard, while the tax disadvantage had eased, fund houses were still unable to launch balanced hybrid funds as most already offered aggressive hybrid schemes. That changed earlier this year after Sebi allowed AMCs to offer both categories.
According to the draft Scheme Information Document (SID), SBI Balanced Hybrid Fund will follow a balanced and disciplined approach to asset allocation by investing in a mix of equity and equity-related instruments and debt and money market instruments. The proposed allocation includes 40-60% of total assets in equity and equity-related instruments, including REITs, and 40-60% in debt securities, money market instruments and units of debt-oriented mutual fund schemes. The portfolio allocation may change depending on economic conditions, interest rates, liquidity and other relevant considerations, including the risks associated with each investment. The scheme offers a distinct proposition within the hybrid fund universe as it maintains equity and debt allocations within a narrower 40-60% range, resulting in a more predictable asset mix compared to balanced advantage funds where fund managers have wider discretion to alter equity exposure based on market conditions.
The equity portion of the scheme will be invested in a diversified mix of companies across sectors, themes and market capitalisations. The debt component is intended to provide income stability, liquidity, and risk mitigation, with investments including government securities, corporate bonds, money market instruments and other permitted fixed-income securities. The scheme aims to generate long-term capital appreciation and income by predominantly investing in equity and debt instruments. As per Business Standard, balanced hybrid funds are designed for investors seeking long-term equity participation while moderating portfolio volatility through debt exposure, with the balanced approach providing a smoother investment experience, especially for first-time investors in a moderate-return environment.
The scheme may invest in foreign securities, including ADRs, GDRs, foreign equity, overseas ETFs and debt securities, subject to applicable SEBI and RBI regulations. As per the draft SID, such investments may not exceed 35% of the net assets of the scheme. The document notes that derivatives are leveraged instruments and can provide disproportionate gains as well as disproportionate losses to the investor.
The debt portion of the scheme will be managed by Rajeev Radhakrishnan, who is currently Chief Investment Officer – Fixed Income and Head of Research – Fixed Income at SBI Funds Management and has around 22 years of experience in fund management, including around 20 years in fixed-income fund management and dealing. The equity portion will be managed by R. Srinivasan, who has more than 31 years of experience in equities and has worked with various organisations in asset management and financial services. The scheme will benchmark its performance against the NIFTY 50 Hybrid Composite Debt 50:50 Index. The draft SID offers several investor facilities including SIP with options for daily, weekly, monthly, quarterly, half-yearly and annual frequencies, SWP with minimum ₹500 withdrawal, STP for systematic transfers, and MITRA SIP for unit switching after specified periods.
According to Business Standard, Vishal Dhawan, founder and CEO of Plan Ahead Wealth Advisors, explains that the advantage of balanced hybrid funds lies in their tighter asset allocation range of 40-60%, giving investors a far more balanced exposure than balanced advantage funds where the range can be much larger and fund managers have far more discretion. While this can work well when asset allocation decisions are correct, it can also backfire if calls go wrong. Roshan Chutkey, senior fund manager at ICICI Prudential AMC, emphasizes that balanced hybrid funds are designed for investors seeking long-term equity participation while moderating portfolio volatility through debt exposure, providing a smoother investment experience in moderate-return environments, especially for first-time investors.
