MFs hardsell hybrid funds

MUMBAI: Sensing confusion in the minds of retail investors, following the dramatic recovery in stock prices, top fund houses are advising investors to start investing in hybrid funds ��� schemes that invest in both equity and debt instruments. This way, investors will be able to capture any further uptrend in stock prices, and at the same time, not lose heavily if the rally fizzles out. But are investors biting?

���Fund houses are trying hard to sell hybrid plans to investors. Their belief is rooted in the fact that markets have risen over 40% over the past two months, and investors would be scared to invest in equities at current market levels,��� said Vinay Shukla, vice-president (distribution) of India Infoline.

���However, the response has not been all that great as most investors who are keen on an equity exposure, prefer to play the high stakes game by investing in growth (pure equity) schemes,��� added Mr Shukla. Balanced funds are the most popular type of hybrid mutual fund schemes. It invests in a mix of debt and equity; most balanced funds available in the market keep a minimum of 65% in equity. A few fund houses have also changed the load structure (low-entry load and high exit load model) to attract investors.

But even some fund managers are not convinced that it is a great idea. ���Balance fund undoubtedly is a good concept, but if you consider it logically, it doesn���t make sense. As an investor in balance funds, you���ll have 65% exposure to equities. If you can take that level of investment risk, why not invest that portion of money into a diversified equity fund...

The remaining 35% can be held in cash,��� said Canara Robeco MF head (fixed income) Ritesh Jain. According to him, if an investor is investing in balanced funds, he���s not really looking for any returns (or capital cover) on the debt side. If risk aversion is the criteria, the investor can opt for monthly income plans (MIPs), which invest 80-85% of the corpus in debt schemes, and the remaining in equities, Mr Jain added.

���By investing into an MIP, investors can safely expect a return of 11-12% per annum; the return break-up could be 5-7% in the debt side and 4-7% on equity investments,��� he said. As per Value Research, monthly income plans have given returns in the range of 2-20% over the past one year.

Typically, MIPs are suited for investors with a low-moderate risk appetite and it aims to provide investors with liquidity by regularly declaring dividends. However, it should be understood that dividends are not assured. ���These are times that favour both fixed income and equity investments,��� said Vikaas Sachdeva, head-business development of Bharati Axa Investment, which launched an MIP recently.

���While falling inflation, slipping G-sec yields and falling interest rates make the case for fixed income investments, beaten down markets, easy valuation and high probability of market upmoves make equities an interesting asset class. This makes hybrid funds an ideal investment choice for the current times,��� Mr Sachdeva added.