All About SBI Equity Hybrid Scheme

By  //  June 25, 2022

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In mutual funds, there is a middle ground between equities and debt, and those are known as hybrid funds. However, do you know what is an equity hybrid fund? If not, then in this article you can read about the same, and understand how they can benefit your investments as well. 

What is an equity hybrid fund?

An equity hybrid fund is a type of hybrid fund where around 2/3rd of the asset is invested in equities and remaining in the debt instruments. For instance, SBI equity hybrid fund where the percentage of equity in the fund is 73.14% and debt is 22.19% remaining fund is invested in other assets. These funds offer the growth of equities as well as the stability of the debt instruments. 

Equity hybrid funds are the most popular funds among the hybrid funds and offer higher returns than debt funds most of the time and the returns are closer to equity fund’s returns. 

Benefits of equity hybrid funds

There are multiple benefits of investing in an equity hybrid fund and the most crucial ones are – 

1. Equity hybrid funds offer better returns than debt funds at moderate risk. Usually, equity funds offer higher returns but also possess higher risk. However, due to the allocation of assets into debt instruments in the equity hybrid funds, the risk level decreases while the return potential is high due to a higher percentage of equity in the fund. 

2. The next benefit is taxation. Equity hybrid funds are taxed as equity funds and not as debt funds. On equity funds, the long-term capital gain tax is 10% with indexation and above the profit of Rs. 1 lakh and the short-term capital gain tax is 15%. However, on debt funds, the long-term capital gain tax is 20% with indexation and the short-term capital gain tax is as per the tax slab applicable to that individual’s income. So, equity hybrid funds enjoy the tax benefit as well. 

3. These funds offer a well-balanced portfolio where you have equity and debt instruments both to provide good returns and stability at the same time. 

SBI Equity Hybrid Fund and its consistent performance

SBI mutual fund offers an equity hybrid fund which is known as SBI Equity Hybrid Fund. It was launched in the year 2013 and performing since then consistently well. The fund is comprised of 73.14% of equity and equity-relation instruments, and the remaining is invested in debt instruments.

The top equity holdings in this fund are ICICI Bank Ltd which comprises 6% of the assets of the fund, then there is HDFC Bank Ltd., Reliance Industries, Infosys Ltd, and others. The fund has mainly invested in the financial sector as understood by its asset allocation strategy. It has 20.66% of its assets invested in financial services while 7.96% in healthcare and 6.8% in energy. These three are the top three categories of assets where the fund has invested money. 

Another observation is that the fund has more than 50% of its equity investments in large-cap stocks. It holds mid-cap and small-cap as well but 56.33% of its asset in the equity segment is invested in large-cap funds. 

From this observation, we can say why the fund has been consistently performing well for the past years. First of all, the financial sector, especially the fintech industry is booming which is driving the fund’s growth. Then large-cap stocks are providing stability to the fund and also healthcare being the second most investment segment in this fund, has boomed in the past three years due to the pandemic. 

Now coming to the debt portion of the fund, it has 6.41% of the asset under debt investments in GOI bonds, then there are Indian Bank bonds and similar ones. Another factor driving the growth and consistent performance of this fund is its investment in Sovereign Bonds and A1+ quality debt instruments. Since the fund invests more in quality debt instruments, it becomes easy for the fund house to generate good returns on regular basis. 

Conclusion

So, Equity and debt both are important for building a good investment portfolio. However, if you get the benefits of both the asset class in one single investment, via equity hybrid funds, your returns can improve and the cost of the investment may reduce as well.