Hybrid Funds vs Bank FD: Why are rich investors changing their investment strategy, know the new formula for higher returns and tax savings…

Business Desk – Hybrid Funds vs Bank FD: High Net Worth Individuals (HNIs) of the country are now staying away from traditional bank fixed deposits (FD) and old debt mutual funds. The biggest reason for this is the changing tax rules and the search for better post-tax returns. Now the trend of rich investors is increasing rapidly towards hybrid debt funds and specialized investment funds (SIFs). In these investment options, one is getting the benefit of tax savings along with better returns.

Why is the craze for hybrid funds and SIF increasing?

After changes in tax rules on debt mutual funds, traditional investment options for HNIs are no longer as attractive as before. For this reason, they are now turning to hybrid funds like UNIFI and Redhex.

These funds do not invest investors’ money in just one asset class, but invest in multiple options like fixed income instruments, stock market and REITs (Real Estate Investment Trusts). This reduces the investment risk and increases the chances of getting better returns in the long run.

New formula to save tax became a big reason

The biggest feature of these funds is considered to be their tax structure. The investor has to pay tax on the interest received in bank FD as per his income tax slab. If a person falls in a higher tax slab, he may have to pay 30 percent or more tax.

In contrast, profits held for a specified period in hybrid funds and SIFs may attract long term capital gains (LTCG) rules, thereby reducing the tax burden in many cases. For this reason, after paying tax, investors are left with higher returns.

What is the difference between bank FD and hybrid funds?

According to experts, if an HNI invests in bank FD, its effective return after tax deduction can be limited to around 4.5 percent in many cases. At the same time, if the same investment is made in options like hybrid funds or SIF, then the possibility of getting effective returns after tax is said to be around 7 percent. That means the investor can get additional post-tax returns of 2 to 2.5 percent. In the long run, this additional return can help in creating additional wealth worth crores of rupees.

Benefits of diversified investment with less risk

Another great feature of hybrid funds is that investments are made in many different asset classes. When the stock market fluctuates, debt instruments and other investment options help keep the portfolio balanced. This keeps the risk relatively low and returns can be more stable.

For which investors are these options?

Hybrid funds and SIFs are primarily considered more suitable for investors who have large investment amounts and want to grow their wealth in a tax efficient manner. However, every investor’s risk appetite, investment period and financial goals are different. Therefore, it is better to take advice from your financial advisor instead of taking investment decisions only on the basis of high returns.

What is the signal for investors?

Changing tax rules and new investment options have changed the strategy of HNIs. Now their focus is not just on safe returns but on post-tax returns, portfolio diversification and better wealth creation in the long term. This is the reason why investment options like hybrid funds and SIF are becoming increasingly popular compared to bank FD.

Note: The tax applicable on any fund depends on its actual structure and prevailing income tax rules. It is advisable to consult a tax advisor or financial advisor before investing.