There are multiple schemes under seven different categories of hybrid funds and RupeeIQ takes a look at the performance of these schemes in 2018
What’s common between Zebroid, Liger, Wholphin, Pizzly and Mule? As you may have guessed, they are examples of hybrid animals. In the world of mutual fund investment, hybrids represent the best of both worlds, or so we are told. By combining the positive aspects of two or three things, hybrid mutual funds try to present the best of each asset. As a result, the investors by virtue of investing in a single product get a readymade investment experience without undergoing the hassles of ‘doing it yourself’.
Year 2018 hasn’t been a great year for the equity market. Naturally, debt returns look much better. So, how have hybrids fared in a year when equity definitely dragged them down while fixed income provided a much-needed cushion? RupeeIQ reviews hybrids funds and looks at different hybrid categories.
There are seven hybrid fund categories that Sebi permits. Let us have a look at how each of them fared.
These funds are ideally low-risk bets because they only focus on arbitrage opportunities. The scheme follows arbitrage strategy, and keeps minimum investment in equity & equity related instruments at 65% of total assets to gain a tax advantage. The category average of 5.7% for 2018 shows that in a year when pure equities fared poorly, the low-risk arbitrage approach held up its end of the bargain for investors.
There are 17 arbitrage funds in the market. The best performer in this category ie Reliance Arbitrage Fund secured 6.77%, beating the 6.29% clocked by the largest scheme Kotak Equity Arbitrage Fund Regular Plan (Rs 13,739 crore). The worst performer in the category was Principal Arbitrage Fund – Regular Plan as it reported a decline of 0.81%. This indicates some bets may have gone wrong, which is surprising since this is an arbitrage fund.
Such funds’ investment in equity/ debt is managed dynamically as per fund manager or fund model. So, when equities appear cheap, the fund boosts exposure. When debt appears attractive, the fund will accordingly reduce equity exposure and move more into debt. There are 18 funds in this category. Two of the industry’s largest funds are in this space too, but none of them was the best performer in 2018. The year’s best performing hybrid dynamic asset allocation fund turns out to be SBI Dynamic Asset Allocation Fund with over 8% return. This is quite impressive in terms of the fund’s ability to deliver in a year where both equities and debt had volatile moments. The Rs 29,000-crore ICICI Prudential Balanced Advantage Fund managed to eke out 2.44% gain while the Rs 37,000-crore HDFC Balanced Advantage Fund posted slightly negative return. The worst performing scheme in this category was Invesco India Dynamic Equity Fund with 4.6% drop in NAV for 2018.
This fund category exudes safety. Investment in equity & equity related instruments is between 10% and 25% of total assets, while investment in debt instruments is between 75% and 90% of total assets. There are a total of 38 schemes in this category. The average return of this fund category is 1.94%. The best fund ie ICICI Prudential Advisor Series-Hybrid Fund gave 6.37% return in 2018 (upto Dec. 31). Seven other schemes delivered more than 4% return – Indiabulls Savings Income Fund – Regular Plan, ICICI Prudential Regular Savings Fund, HSBC Managed Solutions India – Conservative – Regular Plan, Kotak Asset Allocator Fund Regular Plan, Franklin India Life Stage Fund of Funds 50s Plus – Floating Rate, Reliance Retirement Fund – Income Generation Scheme and Reliance Hybrid Bond Fund. The worst fund ie DSP Regular Savings Fund lost your money as it fell 5.5%. One can easily figure why has the DSP debt fund’s NAV declined. Hint: IL&FS related issues.
This is also a very popular space among fund-houses. In this structure, equity & equity related instruments have to be between 40% and 60% of total assets, while debt instruments must be between 40% and 60% of total assets. Importantly, no arbitrage would be permitted in this scheme. This category has 10 schemes in total. The best performing fund, ICICI Prudential Advisor Series-Conservative Fund, delivered 8.6% in 2018. The worst fund ie Tata Young Citizens Fund – Regular Plan lost 8.85%. It is immediately difficult to tell why the fund lost that money, but even a steady amount of equity exposure, especially in mid and small cap, could have resulted in asset erosion. Do remember fund houses can either have an aggressive hybrid fund or a balanced hybrid fund.
This category of hybrid schemes is popular because of their equity focus. The exposure to equity & equity related instruments in these products is between 65% and 80% of total assets, while exposure to debt instruments is between 20% 35% of total assets. Since equities performed poorly in 2018, the category average was a 2.5% loss. That’s not surprising at all. Most of the fund-houses have an aggressive hybrid fund, a reason why there are as many as 33 schemes in this space. The best performing fund was Sundaram Equity Hybrid Fund with 2.8% gain in NAV. The worst fund is BOI AXA Mid & Small Cap Equity & Debt Fund as its NAV declined by 14.17% in 2018. Many of the biggest funds in this category, ie SBI Equity Hybrid Fund, ICICI Prudential Equity & Debt Fund and HDFC Hybrid Equity Fund, also posted losses for 2018.
These funds are 3-in-1 by nature. They invest in at least three asset classes with a minimum allocation of at least 10% each in all three asset classes. Such diversification has helped them to navigate 2018. There are 17 schemes in this category, where most of the funds haven’t even crossed Rs 1,000 crore asset mark barring one (ICICI Prudential Multi Asset Fund). The best performing fund in this space turned out to be Quantum Multi Asset Fund – Regular Plan with 4.88% gain, followed closely by Quant Unconstrained Fund (4.53%) and Sundaram Multi Asset Fund (4.33%). The worst performing scheme was HSBC Managed Solutions India – Moderate – Regular Plan with a loss of 4.01% in NAV for 2018.
The best-performing equity savings fund was Axis Equity Saver Fund-Regular Plan that gained 5.08% in these last 12 months. Mahindra Dhan Sanchay Equity Savings Yojana – Regular Plan (previously Mahindra Mutual Fund Dhan Sanchay Yojana) was the worst performer in 2018. Read our detailed coverage of this category here.
Disclaimer: Historical returns are not indicative of future performance. Please note that investors are requested to consult their financial, tax and other advisors before taking any investment decision.
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