Mutual fund investors are losing interest in aggressive hybrid funds

The category saw net redemptions in January (Rs 952 crore) and February (Rs 1,077 crore) as well.

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Are mutual fund investors losing faith in aggressive hybrid schemes? According to Amfi data, the aggressive equity hybrid category has been witnessing heavy outflows since September 2018. The category last saw inflows in August 2018, since then it has been downhill. In March, the balanced category saw net outflows of Rs 3,181 crore.

Mutual fund managers believe investors have started deserting these schemes since they stopped declaring regular dividends. Dividends were the unique selling point of the aggressive hybrid equity category. Many investors, especially retired investors, used to invest money in aggressive hybrid schemes (earlier referred to as balanced schemes) to earn regular income.

“Earlier investors used to invest in balanced funds with expectation of regular monthly dividends. Since the monthly dividend has started waning, investors are leaving the category. The whole concept is flawed,” says Swarup Mohanty, chief executive officer, Mirae Asset Mutual Fund.” Investors were wrong in banking on the dividend for the regular cash inflow. They should understand that dividend is for the fund to pay if it has surplus,” adds Swarup Mohanty.


The category saw net redemptions in January (Rs 952 crore) and February (Rs 1,077 crore) as well. (See chart below for the monthly net inflows or outflows in the balanced funds category)

The dividends in aggressive equity hybrid funds started diminishing due to a volatile stock market and the introduction of dividend distribution tax on equities by the Finance Minister in his budget speech in 2018. “The equity markets have been highly volatile for over an year now, which is impacting the returns in balanced funds just like the other equity fund categories, thus scaring the investors away,” says Umesh Rathi, CEO - Wealth, Arihant Capital.

Aggressive equity hybrid funds are mandated to invest 65-80 per cent in equities. They can also invest around Rs 20-35 per cent in debt.

Mohanty believes mutual fund advisors should formulate a good SWP plan for the investors in need of regular income instead of banking on regular dividends.
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Net inflows/ (outflows) in balanced funds (Rs crore)
graph
Source: Amfi


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