Best LIC Hybrid Mutual Funds

Incorporated in April 1989, LIC Mutual Fund is a reputed mutual fund house constituted by LIC of India. As of March 2021, this AMC had its quarterly assets under management valued at Rs.16594.23 crore.

It currently offers more than 20 mutual fund schemes distributed across equity, debt and hybrid fund categories. This includes the best LIC hybrid mutual funds.

Hybrid funds make investments in multiple security types like bonds and stocks. Achieving diversification and avoiding concentration risk are the main objectives of hybrid mutual funds to make investments in both equity and debt instruments. 

An optimum mix of these two components bears the potential to generate high returns compared to a pure debt fund.  Additionally, because of this mix, these funds are relatively less volatile than regular equity funds. Through a balanced portfolio, hybrid mutual funds generate income in the short run and also achieve significant wealth appreciation in the long run.

However, the precise scale of their upsides and downsides vary premised on the scheme type. Broadly, hybrid mutual funds are segregated into debt-based and equity-based schemes. The latter invests predominantly in equity and equity-related instruments. The former invests mainly in debt securities. 

LIC Mutual Fund presently offers approximately 4 hybrid schemes, including arbitrage, equity-based, and debt-oriented types. Arbitrage funds involve the lowest risk since they make gains from the price difference between stock prices in different stock exchanges. Equity-based funds feature the highest risk-reward potential, and debt-based schemes offer moderate returns against nominal risks.  

Besides being familiar with the above facts related to the best LIC hybrid mutual funds, investors must take note of the taxability and other vital parameters associated with these funds.

Taxability

Taxation on hybrid funds depends on their asset allocation. Funds with a higher share of investments in stocks are considered equity MFs for tax purposes. Conversely, schemes with more investment in debt instruments attract tax like a pure debt fund. 

Long-term Capital Gains Tax: Capital gains on debt-based funds attract tax @ 20% + indexation benefits if they are realised after 3 years from the purchase date. On the other hand, investors need to pay 10% tax on gains exceeding Rs.1 lakh if they sell units of an equity-based scheme after 1 year. 

Short-term Capital Gains Tax: Profits from selling equity-oriented MF units before a year of investment are taxed at 15%. Conversely, proceeds from a debt-oriented fund will be added to an investor’s taxable income. 

TDS: One needs to incur 10% TDS on dividends exceeding Rs. 5000 from the best LIC hybrid mutual fund. 

Factors to Consider Before Investing

The other factors to consider include –

Risk factor: Investments made by investors in the best LIC hybrid mutual funds 2023 cannot be considered free of risk. The risk associated with these funds primarily depends on the portfolio’s equity component. The more the equity component, the greater is the risk involved. The sector or market capitalisation of underlying stocks where a hybrid fund invests define the associated risk factor. The strategy used would also come into consideration here.

Return: Investors must note that hybrid mutual funds do not commit guaranteed returns. The performance of underlying securities affects the Net Asset Value or NAV of the best LIC hybrid mutual funds. That is the reason why fluctuations might arise due to market movements. Furthermore, these funds may not declare dividends during market downturns.

Experience of the fund manager: Most investors put considerable emphasis on a fund manager. They can be assessed depending on several parameters like experience level, ability to identify scripts as compared to their peers, etc. This is because a fund's performance depends on the competence of a fund manager/managers handling it.

Investment horizon: Investors must note that hybrid mutual funds are often considered ideal for a medium-term investment time horizon of around 3 to 5 years. But, with an increase in the length of this investment horizon, the possibilities of high and stable returns improve.

Expense ratio: The top LIC hybrid mutual funds come with a fee, which is referred to as the expense ratio. This fee is charged by mutual fund houses and fund managers for managing an investor’s portfolio. This expense includes the fees for record-keeping as well. An investor will receive higher take-home returns by investing in a hybrid fund with a low expense ratio. Having mentioned that, it is not necessarily true that a hybrid fund with a high expense ratio will yield low returns.

Investment strategy: An investment strategy defines the mix of assets selected, the portion in each asset, and investment style. One must keep in mind that fund managers determine this investment strategy, and one cannot influence the way different components might be combined or chosen. 

With the help of some elementary knowledge about hybrid mutual funds and referring to this article as a guide would help budding investors select an apt fund out of the best LIC hybrid mutual funds, which can otherwise prove to be a difficult task.