The nature of balanced funds (second type of Hybrid funds) is different from MIP and so is the percentage of investment. These options invest higher amounts in equities for the purposes of higher returns while the component of debt is less than that of MIP. Around 65 percent to 75 percent of investments of balanced funds is in equities while 25 percent to 35 percent of the exposure is in debt.
Having said that the amount of risk involved in such funds is less when compared to equity funds where the total sum invested ranges from 90 percent to 100 percent. Investors who want to avoid heightened volatility and are risk averse generally invest in such funds. The tax benefits of balanced funds are higher than income plans.
Dividend Distribution tax that is a liability in case of MIP is not charged here. Similarly, there is no onus of Long term capital gains tax. However, these funds are slapped with 0.001 percent of Securities Transaction Tax (STT) because of their contact to equities. Balanced funds are also a good choice because an investor gets the benefits of both equity and debt in a same scheme rather than investing separately in two products.
It should be remembered that in no case MIP and Balanced funds can be used as a surrogate option. Both the funds have different exposure and implications when taxation matters are concerned. In fact, the investor class who invests in these two funds is also different. Therefore, the choice depends upon the reimbursements.
About the Author:
Amit Sethi is an MBA (Fin) graduate and a Financial Consultant. He has spent over 10 years in Equity research, Stock broking and Financial Consultancy Sector. He can be reached at firstname.lastname@example.org