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Ch.2 · Mutual Fund Structure Basics · hard

What is a 'Debt-oriented Hybrid Fund' in terms of tax treatment?

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EXPLANATION

A fund is taxed as a debt fund when its equity allocation is below 65% of total assets. Conservative Hybrid Funds (10–25% equity) are therefore taxed as debt funds — STCG is added to income (taxed at slab rate) and LTCG after 2 years is taxed at 20% with indexation.

A.Taxed as equity fund since it holds some equity

B.Taxed as debt fund since equity allocation is below 65% [✓ Correct]

C.Taxed at a special flat rate of 15%

D.Tax-exempt as it is a hybrid between equity and debt

EXPLANATION

A fund is taxed as a debt fund when its equity allocation is below 65% of total assets. Conservative Hybrid Funds (10–25% equity) are therefore taxed as debt funds — STCG is added to income (taxed at slab rate) and LTCG after 2 years is taxed at 20% with indexation.

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