Capital gains taxation of mutual funds depends on how much the fund invests in equity and debt. Since hybrid funds have different equity-debt allocations, the tax treatment of their capital gains varies based on their portfolio allocation.

So, let's find out the taxation of different types of hybrid mutual funds.

What are the different types of hybrid funds?

Hybrid mutual funds invest in both equity and debt instruments, offering the growth potential of equities along with the stability of debt instruments. However, the allocation between equity and debt varies across different types of hybrid funds, in line with SEBI regulations.

How capital gains of hybrid funds are taxed?

The capital gains of mutual funds are dependent on how the fund is structured and for how long the investors hold the investments.

Equity-oriented hybrid funds

The equity-oriented hybrid funds invest at least 65% of their assets in equity and related instruments. If you sell the units in less than or equal to 12 months of buying, then short-term capital gains (STCG) are taxed at a rate of 20%.

If you sell the units after 12 months of holding, then they are considered long-term capital gains and are taxed at 12.5%. If the long-term capital gains are less than ₹1.25 lakh in a financial year, then no tax will be applicable.

The list of equity-oriented hybrid funds is:
1. Aggressive hybrid fund

2. Arbitrage fund

3. Equity savings fund

Debt-oriented hybrid funds

The debt-oriented hybrid funds invest at least 65% of their assets in debt instruments or no more than 35% in equity instruments. All capital gains from these funds, irrespective of whether they are short-term or long-term, are taxed at the investor's applicable income tax slab rate.