Best PPFAS Hybrid Mutual Funds

Parag Parikh Financial Advisory Services set up an AMC division in October 2012. Managing approximately 5 integrated schemes, they are a relatively young player in the mutual fund sector. Presently, as of 2021, PPFAS manages an AUM of around Rs.24,65,338.68 crore. Moreover, this corpus represents 0.07% of the entire Indian mutual market. 

Some of the best PPFAS hybrid mutual funds were established from 2021 onwards. Hybrid mutual funds invest both in debt and equity instruments. Hence, the name hybrid. Further, there are many subcategories based on their percentage of investment in debt and equities. These are conservative, balanced, aggressive, dynamic, multi-asset, arbitrage and equity savings. 

Under the conservative category, the top PPFAS hybrid mutual funds invest 10-25% in equity and equity-related instruments and the remainder 75-90% in debt-related investments. Additionally, PPFAS’ conservative hybrid funds invest in REITs and InvITs. However, there are less than 3 hybrid mutual fund schemes from PPFAS as of now.

The rationale behind hybrid funds is to offset the high risk of equity by investing in the low-risk debt markets. They aim to strike a balance between the two. Debt instruments earn a stable income, while equity promises higher growth. Funds that tilt towards the equity side are more growth-oriented, with the risks being offset by debt instruments. Conservative hybrid funds incline towards debt to take advantage of some equity growth while securing their investment.

Factors to Consider Before Investing

Before an individual chooses to invest in any of the best PPFAS hybrid mutual funds, some essential factors should be considered.

Risk-factor: It is unwise to think that the best PPFAS hybrid mutual funds are risk-free. While a hybrid fund invests in debt and equity vehicles, it does not imply that debt will offset the equity risks.  So, experts prescribe caution before investing. 

Financial objective: Before investing in any mutual fund, the investor should set his goal or purpose. The purpose may be for the long term or the short term. Some common objectives can be buying a house, a car, a vacation, retirement savings, etc. 

Time horizon: A time horizon, that is, any duration of investment, is another essential factor for hybrid funds. 

Returns: Most hybrid funds do not guarantee returns. These include some of the best PPFAS hybrid mutual funds 2023. The NAV depends on the underlying securities; hence, these are subject to moderate to significant volatilities. Additionally, during downturns in the market, they may not declare dividends or interest earnings. 

Expense ratio: For the management of any mutual fund scheme, there is plenty of behind-the-scenes expenditure. The fund house needs to pay managers and brokers and clear taxes. Since it is also a service, a fund house also charges a service fee. Hence, the funds pass on this expense to the investor in the form of an expense ratio. It has a direct impact on the take-home returns.

Exit load: The best PPFAS hybrid mutual funds may involve an exit load. The exit load is a per cent of the earnings when an investor leaves the fund prematurely. Fund houses charge exit load to dissuade persons from quick or premature exits. 

Performance against category: Another suitable benchmark for evaluating a scheme is its performance against other funds of the same type. Therefore, a conservative hybrid fund should be compared against other conservative hybrid funds and not any other subcategories of hybrids. 

Factors to Consider Before Investing

There is another important aspect of hybrid mutual funds, known as taxation on capital gains. Capital gains are the income a person earns from the sale of mutual funds. Earlier dividends from mutual funds were not taxed, but from the year 2021, they are. Here are the details of the types of taxes applicable to hybrid mutual funds. 

Hybrid funds may be taxed as equity-oriented or non-equity-oriented based on the percentage of investment in either instrument. For hybrid MFs, there is also a TDS deducted on the income earned from dividends. 

Long-term Capital Gains Tax: An individual earns long-term capital gains when equity-based mutual fund units are sold after a year. The tax charge is at 10% for income over Rs.1 lakh. Capital gains on debt-based funds realised after 3 years attract a 20% tax with indexation benefits. 

Short-term Capital Gains Tax: An individual earns short-term capital gains when they sell their equity-based MF units before completing a year. The tax charge is at 15% for equity-oriented. Investors earn STCG on debt-based schemes when they sell their units before 36 months. It is added to their taxable income and charged per the slab rate applicable to them.

TDS: Hybrid funds may pay dividends. Hence, they are subject to a TDS at 10% if the income exceeds Rs.5,000. 

In conclusion, the best PPFAS hybrid mutual funds will be subject to these taxation rules when an individual decides to sell the units. Moreover, an individual may adhere to the essential factors mentioned above before purchasing some of the best PPFAS hybrid mutual fund.