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Following SEBI’s circular, fund houses have been re-jigging their open-ended schemes to meet the new categorisation and rationalisation norms.
A new category, as per the SEBI directive, called Conservative Hybrid Fund, is suitable for investors with a medium-risk profile wanting some equity exposure. The funds under the category invest 10-25 per cent of their total assets in equity, and the rest in debt instruments.
The higher allocation to debt helps steady growth of principal with minimal risk.
The equity component, on the other hand, helps bump up returns.
These funds are suitable for retirees or people nearing retirement who can shift part of their investment from high-risk assets to relatively low-risk funds.
ICICI Prudential MIP 25 Fund is one such fund under the conservative hybrid funds category. With the new category classification, the fund will also undergo a change in name to ICICI Prudential Regular Savings Fund with effect from May 28.
However the fund’s portfolio is unlikely to see any significant change. Over the past three years, ICICI Pru MIP 25 has invested 21-25 per cent in equities, while allocating the rest to debt and money-market instruments.
The benchmark of the fund has changed to CRISIL Hybrid 75+25 - Conservative Index, a blend of S&P BSE 200 (25 per cent) and CRISIL Composite Bond Fund Index (75 per cent).
Performance
The fund has delivered 10.3 per cent annualised returns since its inception in 2004.
It has delivered 9.5, 11 and 10.8 per cent annualised returns over three-, five- and seven-year periods, respectively, while the category (comprising nine funds that allocate 20-25 per cent to equities) posted 7.6, 8.8 and 8.8 per cent returns during the same periods.
The fund has managed to generate relatively better returns across rates cycles.
Given its large-cap orientation in equities, it has delivered relatively higher returns in bear phases, but registered moderate ones in bull phases.
Portfolio
The scheme seeks to tide over volatilities in equity market by keeping equity exposure to 10-25 per cent of the portfolio.
On the fixed-income side, the fund has invested in a mix of government securities and corporate bonds. It actively manages its debt-portfolio duration based on the underlying interest rate view. Over the past three years, the fund’s modified duration has been maintained at 2.6-6.6 years. Due to the volatility in debt markets and recent spike in yields, the scheme has added exposure to credit instruments (around 23 per cent in AA-rated and below) to generate relatively higher accrual income.
The average maturity of the portfolio was brought down to 3.6 years from 10 years in the last one year. The scheme has a high YTM (yield to maturity) of 9.8 per cent as on April 30.
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