NFO review: Indiabulls Equity Hybrid Fund, a play on current account deficitIndiabulls Mutual Fund has unveiled its latest offering Indiabulls Equity Hybrid Fund, an open-ended hybrid scheme investing predominantly in equity and equity related instruments. The new fund offer period starts from November 22 and ends on December 6. This will be an aggressive hybrid fund, which means from a risk-adjusted return point of view, it will be nestled between a balanced hybrid structure and an equity savings structure.

Read on to know RupeeIQ’s take on the latest offering in the 39-member strong aggressive hybrid space.

Fund portfolio – This aggressive hybrid fund will strive to maintain an equity allocation of 65-80% and debt allocation of 20-35%. This approach should help investors reap the dual benefits of 1) wealth generation through investment in equities and 2) lower volatility through investment in debt.

Suitable for – This scheme is ideal for investors having a moderately high-risk profile.

Fund USP – Using CAD, or Current Account Deficit, is a unique thing about the fund. The CAD movement will be used as one of the investment criteria to determine the sector allocation in equity & duration calls in debt. CAD is nothing but the difference in the balance of trade. This is a difference between the import trade and export trade including income and expenditure. In short, if the imports are more then the exports, including remittances, there is a deficit in the current account. The deficit is usually measured as a percentage of GDP. Last 10 years average CAD to GDP is 2.38%.

In equity, fund managers of Indiabulls Equity Hybrid Fund will use 2.30% as the reference point to determine allocation bias to Cyclical or Defensive sectors.

So if the CAD is below 2.3%, the fund may hike exposure to cyclical sectors such as Automobile, Banking, Financial Services, Metals, and Energy.

Current account deficit

If the CAD is more than 2.3%, the fund may hike exposure to defensive sectors such as FMCG, IT and Pharma. Do kindly note that allocation bias will also be determined basis macroeconomic and fund manager outlook.

Current account deficit - defensive sectors

In debt, funds managers of Indiabulls Equity Hybrid Fund will use the same 2.3% as a reference point to decide the duration calls. The fund-house believes that there is a direct co-relation of CAD with G–Sec (Government Securities) yields. When CAD moves above 2.30%, the scheme shall aim to have an average duration of up to 18 months. When CAD moves below 2.30%, the scheme shall aim to have an average duration of up to 60 months.

Portfolio construct – The equity side of the fund’s portfolio will have a large-cap bias with a multi-cap strategy. The scheme’s equity bets will adhere to a concentrated, high-conviction approach. The multi cap route should help the fund benefit from the low volatility of large caps and higher growth potential of mid- and small caps. The debt portfolio will aim to have above AA+ rated instruments. The asset allocation will be based on macroeconomic factors and fund managers’ outlook.

Fund managers – The scheme will have Sumit Bhatnagar (equity segment) as fund manager and Veekesh Gandhi as co-fund manager (equity segment). Malay Shah will oversee the debt segment.

Benchmark – CRISIL Hybrid 35+65 – Aggressive Index

Loads – There is no entry load. For exit after 12 months of allotment, there is no exit load. For exit below 12 months from the date of allotment, there will be no exit load for 10% of investment but for the remaining amount a load of 1.00% will be applicable.

Peer performance – In the last one year, the best performing aggressive hybrid funds have generated 3-5% return amid bearish markets. The worst performing schemes in this category in last 1 year have delivered 4-8% loss. In the last three years, best returns from aggressive funds have been between 10-14% CAGR while the worst returns have been in 5-8% range. The returns picture is much better in five year and 10 year period.

RupeeIQ take – Indiabulls MF has been able to foresee some problems in the equity markets. It exited the NBFC space due to concerns about interest rate scenario and stretched valuations. It did cut down exposure to mid-cap space due to rich valuations. It also, by and large, avoided PSU banking space. Navigating the equity market is the most important job in this fund since it is going to be heavily betting on stocks.

For investors who want to look at a brand-new aggressive hybrid fund, the Indiabulls Equity Hybrid Fund would appeal as a combo plan of debt and equity asset classes. This category of products also gives investors equity long-term tax advantage, with a smart combination of growth due to equity and lower volatility due to debt. We believe any investor considering investment should adopt the Systematic Investment Plan (SIP) route. Those with regular cash requirements, can invest and then take money through the Systematic Withdrawal Plan (SWP) route.

Disclaimer: The article is only for informational purposes. Investors are requested to consult their financial, tax and other advisors before taking any investment decision.

Kumar Shankar Roy

Kumar Shankar Roy is contributing editor with RupeeIQ. He can be contacted on