Business News›MF›Analysis›HDFC Hybrid Equity Fund is offering negative returns. Should you worry?
HDFC Hybrid Equity Fund is offering negative returns in the last one year.
According to several data aggregator and research websites, HDFC Hybrid Equity Fund is offering negative returns (-4.10 per cent) in the last one year. Should investors be concerned? Not really, say mutual fund experts.
"HDFC Hybrid Equity is not delivering losses on a one-year basis. As of 20 July, the fund returned a 2.2 per cent return," says Bhavana Acharya, Deputy Head - Mutual Fund Research, FundsIndia.
"HDFC Balanced Fund was merged into HDFC Premier Multicap (an equity fund) and the resultant fund changed its name to HDFC Hybrid Equity. Its strategy is that of HDFC Balanced Fund. As per rules, when one fund merges into another and the surviving fund retains the strategy of the merged scheme, the performance of the merged scheme needs to be shown. At this time, the returns seen are that of HDFC Premier Multicap, which was an underperformer earlier," she explains.
Experts say the NAVs of merged schemes need to be adjusted to show the actual performance of the schemes created after merger. "Eventually, the correct performance should show up in all places," says Acharya.
Mutual fund advisors are unhappy with the overall performance of the aggressive hybrid category. The category on an average has generated around 4.5 per cent returns in the last one-year. "Ideally hybrid schemes are supposed to perform in a balanced fashion. But the aggressive hybrid equity schemes are skewed towards equities which make the category prone to risk of lower returns in the ongoing market conditions," says Dinesh Rohira, founder & CEO, 5nance.com.
As per Sebi guidelines, an aggressive hybrid fund can invest around to 65-80 per cent of its assets in equities and between 20 per cent and 35 per cent of its assets in debt instruments.
Experts also believe that certain schemes which have a reasonable exposure to mid- and small-cap stocks must have taken the beating due to the correction in that space. "Going by the definition, these schemes have been left open to invest in equities across market cap. So, the schemes which had higher exposure to mid- and small-cap have taken the hit," says Joydeep Sen, Founder, wiseinvestor.in.
HDFC Hybrid Equity Fund is the third largest fund in the category, managing assets worth Rs 21,961 crore. Looking at the fundamentals of HDFC Hybrid Equity Fund, existing investors can remain invested in it, say experts.
"HDFC Hybrid Equity retains the fund manager, characteristics, strategy, risk, and suitability of HDFC Balanced. HDFC Balanced was a top performer in the balanced fund category. The portfolio of the fund and its potential will be the same as HDFC Balanced Fund. There is no reason to worry about investments in the fund at this time," says Acharya.
According to mutual fund advisors, aggressive hybrid schemes are expected to deliver around 12 per cent CAGR returns, provided investors stay invested for three to five years. "Anyone investing in this category must wait for three to five years to get decent returns. Do not judge these schemes by their one-year returns," says Rohira.