How are Hybrid/balanced mutual funds taxed?

I have invested in ICICI prudential balanced advance fund and booked some profits. It is a hybrid fund and is neither 100% equity-oriented nor debt. How will my capital gains be taxed?

This is a very common question that people have especially after the change in taxation of debt mutual funds.

See, mutual funds can be categorised as conservative and aggressive funds based on their asset allocation. Mostly, conservative funds are those that put a majority of their corpus in debt and only 10-25% in equity.

On the other hand, aggressive funds lean heavily towards equities with allocations between 65-80% and rest in debt.

Besides these two, there are other funds with varying levels of equity and debt exposure.

To determine how profits from such funds will be taxed, we’ll have to know the ratio of their equity and debt allocation.

  • If a hybrid fund has more than 65% percent equity allocation, it’ll be taxed just like listed shares. 15% tax on STCG and 10% on LTCG. The holding period to determine whether the gains are long-term or short-term would be 12 months.

  • If a hybrid fund has less than 35% percent equity allocation, it’ll be considered a debt fund and will be taxed as per slab rates irrespective of the holding period.

  • For other hybrid funds with equity exposure between 35 to 65 percent, short-term gains are taxed at slab rates, while long-term gains are taxed at 20% with indexation benefits.

To check the asset allocation of your fund, you can read the fund’s Scheme Information Document (SID).

Hope this clarifies.