If you are looking for a conservative fund with a little exposure to equity for better returns, you can choose a good conservative hybrid fund. In the last few years, these schemes have been through a bad phase. In the last one year, these schemes have offered 8.62% returns. We have handpicked the best schemes from this category for you.
These schemes mostly invest in debt instruments and a small part of their corpus in stocks. These schemes invest 75-90 per cent of the corpus in debt instruments and 10-25 per cent of the corpus in equity or stocks. The small equity exposure helps these schemes to deliver marginally higher returns than pure debt schemes. However, the exposure to equity also makes them riskier.
That is why these schemes are recommended to conservative investors who are ready to take a small exposure to stocks to earn a marginally higher returns than pure debt schemes. In other words, if you are a mutual fund investor who want to invest in stocks, but don’t have the required risk appetite to invest in a pure equity mutual fund scheme, you may consider investing in this category.
The conservative hybrid schemes are almost like erstwhile monthly income plans or MIPs that used to invest a small part of the corpus in stocks. The trouble with MIPs was that individual schemes used to decide the equity exposure themselves. However, after the re-categorisation exercise by Sebi, the investment norms for conservative hybrid schemes are clearly defined.
If you are a conservative investor looking to enhance your returns by taking a small exposure to equity, you may consider investing in conservative hybrid schemes. However, keep in mind that equity is risky, especially in the current market conditions. Do not invest in these schemes with a very short investment horizon. As you know, the equity markets are extremely volatile at the moment.
Here are our recommended conservative hybrid schemes:
Best conservative hybrid funds to invest in 2021
ICICI Prudential Regular Savings Fund
Canara Robeco Conservative Hybrid Fund
Kotak Debt Hybrid Fund
BNP Paribas Conservative Hybrid Fund
If want to know how we have selected these schemes, you may look at our methodology stated below.
Methodology:
ETMutualFunds.com has employed the following parameters for shortlisting the Hybrid mutual fund schemes.
1. Mean rolling returns: Rolled daily for the last three years.
2. Consistency in the last three years: Hurst Exponent, H is used for computing the consistency of a fund. The H exponent is a measure of randomness of NAV series of a fund. Funds with high H tend to exhibit low volatility compared to funds with low H.
i) When H = 0.5, the series of return is said to be a geometric Brownian time series. These type of time series is difficult to forecast.
ii) When H 0.5, the series is said to be mean reverting.
iii) When H>0.5, the series is said to be persistent. The larger the value of H, the stronger is the trend of the series
3. Downside risk: We have considered only the negative returns given by the mutual fund scheme for this measure.
X = Returns below zero
Y = Sum of all squares of X
Z = Y/number of days taken for computing the ratio
Downside risk = Square root of Z
4. Outperformance
i) Equity portion: It is measured by Jensen’s Alpha for the last three years. Jensen’s Alpha shows the risk-adjusted return generated by a mutual fund scheme relative to the expected market return predicted by the Capital Asset Pricing Model (CAPM). Higher Alpha indicates that the portfolio performance has outstripped the returns predicted by the market.
Average returns generated by the MF Scheme =
[Risk Free Rate + Beta of the MF Scheme * {(Average return of the index – Risk Free Rate}
ii) Debt portion: Fund Return – Benchmark return. Rolling returns rolled daily is used for computing the return of the fund and the benchmark and subsequently the Active return of the fund.
5. Asset size: For Hybrid funds, the threshold asset size is Rs 50 crore.
(Disclaimer: past performance is no guarantee for future performance.)
