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The funds under the conservative hybrid category invest primarily in debt securities and money market instruments with moderate exposure to equities. As per SEBI’s new categorisation mandate, these funds are allowed to invest 10-25 per cent of their total assets in equity and the rest in debt instruments. These schemes are suitable for investors with a medium risk profile who want some equity exposure.
The higher allocation to debt helps steady growth of principal with minimal risk. The equity component, on the other hand, helps spice up returns.
These funds are suitable for retirees or people nearing retirement who want to shift a part of their investment from high-risk assets to such relatively low-risk funds.
HDFC Hybrid Debt (erstwhile HDFC MIP Long Term) is one such fund under the conservative hybrid category. The fund has invested 23-26 per cent in equities and allocated the rest to debt and money market instruments.
Performance
The long-term benefit of having a marginal exposure to equity has paid off well for the fund with it delivering better returns than bank deposits over the long run. The scheme has delivered about 10.4 per cent compound annualised return since its launch.
It has delivered 7.4, 10.2 and 11.5 per cent annualised returns during three, five and 10 years, respectively, while the category posted 7, 9 and 9.3 per cent returns. Given its large-cap orientation in equities, the fund has delivered relatively higher returns in bear phases but registered moderate returns in bull phases.
Portfolio
The scheme holds quality bluechip stocks and highest-rated debt securities. Its equity portfolio is tilted towards large-cap stocks, though it follows a multi-cap approach. The fund cherry-picks quality companies with superior growth prospects, which are available at reasonable prices. Financial, energy and technology are the top sectors.
The fund emphasises on safety, liquidity and returns — in that order — while choosing debt securities. Over the years, it has managed its debt portion almost with highest-rated AAA bonds and government securities. The fund manager takes active duration calls. Over the past year, the average maturity of the portfolio has come down to 4.3 years from 8.4 years.
Over the past year, the fund has pruned its allocation in G-Secs (to 14 per cent from 37 per cent) while increasing investment in corporate bonds (to 55 per cent from 33 per cent). AA and A rated bonds comprise 13 per cent of its portfolio, mainly invested in the debentures of commercial banks including Syndicate Bank, Union Bank and Andhra Bank.
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