Broadly, there are two ways of doing asset allocation. You can either do your own allocation to equity, debt and derivatives or you can rely on a hybrid fund. The hybrid fund is a formula based combination which combines debt, equity, gold and derivatives as the case may be in different proportions. The idea is to provide a complete palate of risk and return classes for different requirements.
What are the different types of Hybrid Funds available?
Hybrid funds offer different combinations of debt, equity, derivatives and gold. They also offer the choice of formula based combination and discretion based combinations. The latter are referred to as dynamic funds where the fund managers has a much higher leeway to decide on the asset mix.
SEBI has given a detailed prescription of what each of the categories of hybrid funds should comprise of. There are 7 such categories of hybrid funds that have been identified by the regulator. These include Balanced Hybrids, Arbitrage Funds, Equity Savings Funds, Conservative Hybrid Funds, Aggressive Hybrid Funds, multi asset class funds and dynamic asset allocation funds. Let us look at each of them in detail.
Balanced Hybrid Funds
Balanced Hybrid Funds approximately balance their holdings in equity and debt and as the word suggests, they are actually funds with a balance between debt and equity. Typically, the equity and debt components in these funds range between 40% and 60%. So a balanced fund can be 40% in equity and 60% in debt or vice versa or it can be any combination in between. The purpose of investing in balanced hybrid fund is capital appreciation in the long-term while balancing the risk with debt in short term. There are not too many Balanced Hybrid funds that are currently available in India.
Arbitrage Funds
Arbitrage Funds are actually treasury products but have bene classified as hybrid funds by SEBI due to the mix of equity, futures and debt that these funds typically deploy. An arbitrage fund typically sells a stock in the equity market and sells equivalent futures in the so that the premium on futures is locked in as assured profits. Since futures are leveraged products, chunk of the corpus of such funds are invested in equities and hence they will be classified as equity funds for the purpose of taxation. Fund manager leverage volatility of cash and futures market. Typically, cash holdings will be above 65% and the balance in futures margins with positive spread. Here is a list of arbitrage funds in India.
| Scheme Name | NAV Direct | Return 1 Year (%) Direct | Return 3 Year (%) Direct | Return 5 Year (%) Direct | Daily AUM (Cr.) |
|---|---|---|---|---|---|
| Kotak Equity Arbitrage Fund | 31.34 | 4.63 | 5.32 | 5.85 | 24,641.86 |
| ICICI Prudential Equity Arbitrage | 29.02 | 4.45 | 5.25 | 5.76 | 14,861.67 |
| Nippon India Arbitrage Fund | 22.6 | 4.61 | 5.46 | 6 | 11,678.03 |
| Tata Arbitrage Fund | 11.87 | 4.59 | 5.82 | 11,118.88 | |
| Aditya Birla Sun Life Arbitrage Fund | 22.54 | 4.61 | 5.33 | 5.8 | 8,562.07 |
| HDFC Arbitrage Fund | 15.93 | 4.24 | 4.96 | 5.41 | 6,870.05 |
| Edelweiss Arbitrage Fund | 16.31 | 4.65 | 5.55 | 6.02 | 6,400.56 |
| UTI Arbitrage Fund | 29.45 | 4.53 | 5.34 | 5.8 | 5,794.98 |
| SBI Arbitrage Opportunities Fund | 28.25 | 4.51 | 4.93 | 5.53 | 5,759.21 |
| IDFC Arbitrage Fund | 27.64 | 4.3 | 5.21 | 5.78 | 5,602.55 |
| L&T Arbitrage Opportunities Fund | 16.1 | 4.43 | 5.39 | 5.86 | 4,506.30 |
| Axis Arbitrage Fund | 16 | 4.7 | 5.35 | 5.84 | 4,140.39 |
| DSP Arbitrage Fund | 12.36 | 4.09 | 5.21 | 1,789.20 |
Overall, the arbitrage funds have a market cap of Rs.115,000 crore in the Indian context and they are quite popular among corporates as treasury products.
Equity Savings Funds
Equity Savings Funds are a combination of equity, debt and futures & options and are an extension of the arbitrage fund. The only difference is that these are not treasury products but they use futures to enhance returns. These are again equity funds as per the tax levy classification.
| Scheme Name | NAV Direct | Return 1 Year (%) Direct | Return 3 Year (%) Direct | Return 5 Year (%) Direct | Daily AUM (Cr.) |
|---|---|---|---|---|---|
| ICICI Prudential Equity Savings Fund | 17.82 | 10.28 | 9.12 | 8.44 | 4,954.76 |
| HDFC Equity Savings Fund | 52.02 | 18.14 | 11.69 | 10.81 | 2,512.48 |
| SBI Equity Savings Fund | 18.84 | 13.79 | 12.57 | 10.77 | 2,229.30 |
| Kotak Equity Savings Fund | 19.44 | 12.55 | 11.04 | 10.36 | 1,667.95 |
| Axis Equity Saver Fund | 18.5 | 15.39 | 12.85 | 12.03 | 1,156.13 |
| Aditya Birla Sun Life Equity Savings Fund | 19.07 | 14.59 | 12.05 | 10.37 | 543.81 |
Equity savings funds have a total AUM of Rs.17,000 crore overall and are yet to emerge as a popular standalone product in India.
Conservative Hybrid Funds
Conservative Hybrid Funds would normally invest between 10% and 25% of the total corpus in equity and the balance 75-90% in debt. That is why they are called conservative as they are predominantly debt funds but just a small part of the corpus is in equities so that the additional alpha can be generated. Such funds typically have the objective of regular income for investors due to strong debt exposure.
| Scheme Name | NAV Direct | Return 1 Year (%) Direct | Return 3 Year (%) Direct | Return 5 Year (%) Direct | Daily AUM (Cr.) |
|---|---|---|---|---|---|
| SBI Debt Hybrid Fund | 57.6 | 14.56 | 12.78 | 9.4 | 5,345.19 |
| ICICI Prudential Regular Savings Fund | 59.51 | 11.2 | 11.2 | 10.43 | 3,388.99 |
| HDFC Hybrid Debt Fund | 62.25 | 14.05 | 10.77 | 8.64 | 2,658.40 |
| UTI Regular Savings Fund | 55.14 | 13.96 | 9.54 | 9.05 | 1,631.66 |
| Aditya Birla Sun Life Regular Savings Fund | 54.35 | 14.48 | 10.53 | 8.99 | 1,419.36 |
| Kotak Debt Hybrid Fund | 47.37 | 14.8 | 14.41 | 10.77 | 1,267.99 |
| Canara Robeco Conservative Hybrid Fund | 83.32 | 11.62 | 12.94 | 10.34 | 1,047.84 |
| Nippon India Hybrid Bond Fund | 47.51 | 10.87 | 1.95 | 4 | 724.23 |
Conservative Hybrid funds have a total AUM of Rs.20,000 crore overall and are yet to emerge as a popular standalone product in India, especially with debt not being too attractive of late.
Aggressive Hybrid Funds
Aggressive Hybrid Funds can be seen as the counterimage of conservative hybrids. Such Aggressive hybrid funds will typically have between 65-80% in equity and the balance in debt. This small component provides some stability and balance to the predominant equity exposure. These funds tend to outperform conservative hybrid funds in terms of returns, although risk is also higher.
| Scheme Name | NAV Direct | Return 1 Year (%) Direct | Return 3 Year (%) Direct | Return 5 Year (%) Direct | Daily AUM (Cr.) |
|---|---|---|---|---|---|
| SBI Equity Hybrid Fund | 220.7 | 24.81 | 17.94 | 16.14 | 49,147.89 |
| ICICI Prudential Equity & Debt Fund | 237.48 | 43.17 | 20.74 | 16.69 | 18,651.95 |
| HDFC Hybrid Equity Fund | 84.39 | 27.33 | 16.8 | 14.75 | 18,350.82 |
| Aditya Birla Sun Life Equity Hybrid ’95 Fund | 1,176.81 | 26.04 | 15.03 | 12.82 | 7,783.01 |
| DSP Equity & Bond Fund | 260.08 | 26.07 | 20.21 | 16.09 | 7,705.10 |
| Canara Robeco Equity Hybrid Fund | 270.83 | 25.13 | 20.03 | 17.14 | 7,372.85 |
| Mirae Asset Hybrid Equity Fund | 24.85 | 26.56 | 19.15 | 17.33 | 6,450.06 |
| L&T Hybrid Equity Fund | 42.05 | 25.43 | 16.35 | 14.04 | 5,338.30 |
| UTI Hybrid Equity Fund | 264.39 | 32.03 | 16.5 | 13.34 | 4,391.26 |
| Nippon India Equity Hybrid Fund | 73.04 | 29.56 | 9.43 | 10.22 | 3,338.29 |
| Tata Hybrid Equity Fund | 330.1 | 25.9 | 15.63 | 12.7 | 3,300.67 |
| Kotak Equity Hybrid Fund | 27.55 | 31.01 | 21.7 | 15.93 | 2,290.30 |
| Axis Equity Hybrid Fund | 16.9 | 25.77 | 19.9 | 1,871.65 | |
| Franklin India Equity Hybrid Fund | 194.57 | 25.47 | 17.06 | 13.91 | 1,432.79 |
| Sundaram Aggressive Hybrid Fund | 124.66 | 27.81 | 16.42 | 16.26 | 1,067.52 |
Aggressive Hybrid funds have a total AUM of Rs.150,000 crore overall and have emerged as an extremely popular standalone product in India, especially with debt not being too attractive of late, this has become the preferred hybrid option.
Multi-Asset Allocation Funds
Multi-Asset Allocation funds are not too common in India but they combine at least 3 asset classes into a single fund. For example, equity, debt and gold is a classic combination of a multi-asset allocation fund with predominant focus on either of them. The only condition is that each of these should be at least 10%. Of course, gold, equity and debt tend to be uncorrelated largely and that helps in risk diversification.
| Scheme Name | NAV Direct | Return 1 Year (%) Direct | Return 3 Year (%) Direct | Return 5 Year (%) | Daily AUM (Cr.) |
|---|---|---|---|---|---|
| ICICI Prudential Multi Asset Fund | 444.34 | 35.93 | 18.52 | 15.8 | 12,424.31 |
| Axis Triple Advantage | 35 | 25.77 | 21.07 | 16.2 | 1,634.46 |
| HDFC Multi Asset Fund | 51.41 | 20.2 | 17.57 | 12.35 | 1,387.37 |
| Tata Multi Asset Opportunities Fund | 16 | 25.13 | 1,213.10 | ||
| Nippon India Multi Asset Fund | 13.54 | 21.56 | 1,206.66 | ||
| UTI Multi Asset Fund | 47.45 | 13.11 | 10.91 | 9.85 | 881.49 |
| SBI Multi Asset Allocation Fund | 40.07 | 13.96 | 13.52 | 10.67 | 508.38 |
| Motilal Oswal Multi Asset Fund | 11.11 | 5.94 | 216.68 | ||
| Navi 3 in 1 Fund | 29.16 | 22.98 | 16.31 | 12.22 | 18.27 |
| Quant Multi Asset Fund | 80.26 | 57.72 | 30.69 | 18.65 |
Multi-asset class funds have a total AUM of Rs.19,500 crore overall and are yet to emerge as a popular standalone product in India. To an extent, the unfavourable tax treatment of such funds may be the reason.
Dynamic Asset Allocation Funds
Dynamic Asset Allocation the last of these became extremely popular after the record NFO collections of Rs.14,700 crore in the SBI Balanced Advantage Fund. These are based on discretion of the fund manager and the allocations can go from 0% to 100%in debt and from 0% to 100% in debt. That is theoretical, but in practice, most of the BAFs do keep a bare minimum in both asset classes as matter of internal policy.
| Scheme Name | NAV Direct | Return 1 Year (%) Direct | Return 3 Year (%) Direct | Return 5 Year (%) Direct | Daily AUM (Cr.) |
|---|---|---|---|---|---|
| HDFC Balanced Advantage Fund | 292.9 | 27.67 | 14.83 | 13.42 | 41,088.00 |
| ICICI Prudential Balanced Advantage Fund | 53.69 | 16.17 | 13.75 | 12.6 | 38,058.77 |
| Kotak Balanced Advantage Fund | 15.08 | 14.77 | 14.62 | 12,749.62 | |
| Edelweiss Balanced Advantage Fund | 39.4 | 21.03 | 18.66 | 16.18 | 7,047.55 |
| Aditya Birla Sun Life Balanced Advantage Fund | 79.89 | 15.59 | 14.16 | 11.73 | 6,568.75 |
| Nippon India Balanced Advantage Fund | 132.12 | 17.68 | 13.67 | 13.15 | 5,580.04 |
| UTI Unit Linked Insurance Plan Fund | 35.13 | 15.67 | 10.5 | 10.22 | 5,419.97 |
| DSP Dynamic Asset Allocation Fund | 21.96 | 11.14 | 12.33 | 10.8 | 4,767.68 |
| Tata Balanced Advantage Fund | 15.38 | 18.7 | 4,196.43 | ||
| IDFC Balanced Advantage Fund | 20.4 | 17.75 | 14.54 | 12.66 | 2,945.21 |
| L&T Balanced Advantage Fund | 34.35 | 10.07 | 11.37 | 10.12 | 2,124.58 |
| Axis Balanced Advantage Fund | 15.48 | 17.7 | 12.29 | 1,952.66 | |
| Union Balanced Advantage Fund | 15.56 | 11 | 14.99 | 1,778.26 | |
| Baroda Dynamic Equity Fund | 17.3 | 18.63 | 19.71 | 1,711.49 | |
| Motilal Oswal Dynamic Fund | 16.53 | 9.37 | 10.84 | 11.15 | 1,080.22 |
Dynamic funds or Balanced Advantage Funds have a total AUM of Rs.140,000 crore overall and have emerged as an extremely popular standalone product in India. This does not include the Rs.15,000 crore plus managed by SBI and Rs.5,500 crore plus managed by NJ, since both were recent NFOs. If they are added up, the actual numbers would be much bigger.
