NFO review: HSBC Equity Hybrid Fund looks for balanced portfolio approachFund houses, who have a window to launch products, have recently shown a propensity to launch hybrid funds. HSBC Asset Management India has brought the HSBC Equity Hybrid Fund and the new fund offering (NFO) period is open till October 12. The timing of such products is crucial for getting good investor response. Current investment scenario calls for a balanced portfolio approach. Stock markets have been weak, as a falling rupee and inching up interest rates weigh. So, schemes that can achieve optimal asset allocation can safeguard investor wealth. Read on to know more about HSBC Equity Hybrid Fund.

Fund construct

Like any hybrid funds, this scheme too gives you more distinct advantages. It allows you the opportunity to enjoy better risk-adjusted returns with optimal asset allocation. You can maintain the desired asset allocation level in your portfolio with asset rebalancing. You can grow your investments with equity and stabilise the volatility with debt. Also, switching between both asset classes for the desired asset allocation portfolio has no tax incidence.

Portfolio approach

HSBC Equity Hybrid Fund will take exposure to 2 different asset classes to strike the optimal balance between growth & stability. It aims to invest around 70% into equities while rest 30% into debt. The fund has provision to invest 65% to 80% in to equities and 20% to 35% into debt and also 0 to 10% in REiT & InvIT unit.

It will use a flexi-equity strategy. This means the scheme will deploy a sector agnostic style of investment with a flexi-cap strategy. It wants to build a diversified portfolio using PBROE valuation framework. For those who don’t understand what PBROE means, PB refers price to book and RoE refers to return on equity, which are valuation measures for stocks.

As explained above, the flexicap focus will mean the fund will invest in equity and equity related securities with a flexibility to invest across large, mid and small cap companies.

As regards its debt portion, the scheme aims to follow a optimal duration debt strategy and invest in high quality fixed income instruments which offer reasonable yields.

Current opportunities

In the equity large cap space, the fund house feels there is a concentrated performance on a YTD basis in Large Cap indices and there could be a case for wider participation going forward. In the Mid & Small cap segment, there continues to be more bottom up and a sharp correction in mid & small cap names this year
is throwing up some investment opportunities that are now available at more reasonable valuations.

In the fixed income side, corporate bonds between 6 months to 3 years are trading 200 bps over the repo rate and seem to have accounted for more than one rate hike by the RBI. The 5-year corporate bond’s average spread is at 130 bps, going forward it offers good carry with favourable risk reward. The fund’s investors are saved from the predicament of investing in long bond or short bond oriented funds as the fund manager manages the portfolio composition based on the interest rate cycle.

Benchmark – A customized index with 70% weight to S&P BSE 200 and 30% weight to CRISIL Composite Bond Fund Index.

Loads – Entry Load is Nil. Any redemption / switch-out within 1 year from the date of allotment will attract zero exit loads. For 10% of units, nil exit load. For remaining units, exit load will be 1%. If redeemed / switched out after 12 months from the date of allotment, there is no exit load.

Fund managers – Neelotpal Sahai for Equity and Sanjay Shah for Debt


Long term capital gains (LTCG) tax will be 10% (plus surcharge, if applicable and cess) without indexation if units held for more than 12 months. Short term capital gains (STCG) tax will be 15% (plus surcharge, if applicable and cess) if units are held for less than 12 months.

Investor does not pay any tax on dividends but a Dividend Distribution Tax (DDT) is deducted at source @11.648% (10% + 12% surcharge + 4% Health & education cess). The DDT is to be paid by the mutual fund after grossing-up income distributed to the investor.

RupeeIQ take – The HSBC Equity Hybrid Fund is placed right at the middle of potential risk-reward matrix. To be put it simply, the scheme is placed between long duration debt funds and large cap equity funds. The flexi cap equity strategy of the scheme is good on paper, but performance will depend on execution. The fund aims to invest across value, growth and market capitalizations.

On the equity side, the fund managers will focus on themes like private banks and select NBFCs, metal firms, auto & auto ancillaries, hospitality, select names in home improvement and consumer goods, construction, EPC and building material makers, and select names in IT, Energy, Infra, Telecom, Utilities etc.

New to equity, investors with measured equity exposure and those with a balanced approach can consider this product. Having said that, HSBC is a small fund-house and it will be interesting to see if it has the research and investment management bandwidth of the big boys of the AMC industry, who run giant hybrid schemes.

Please note that investors are requested to consult their financial, tax and other advisors before taking any investment decision.

Staff Writer

This article is written by RupeeIQ editorial staff.