Volatile equity markets in the last few months have prompted fund houses to line up hybrid products to attract retail investors. In the last three months, around half a dozen offer documents have been filed with market regulator, Securities and Exchange Board of India (Sebi). Most of these funds are close ended in nature which will predominantly invest into debt securities and partly into equities for additional alpha generation.
DSP BlackRock Asset Management Company (AMC), SBI AMC and UTI AMC are among fund houses that have filed an offer documents to come out with dual advantage funds. Such funds would have tenure of one to three years or above and would invest the debt portion in fixed income securities that generally mature in line with the duration of the plans. The debt component can range from 70-90% depending on the plan. While the remaining corpus would be invested in equities or even in money market instruments.
Dinesh Kumar Khara, MD and CEO at SBI Asset Management Companies (AMC) said, “There is a growing demand of such kind of funds from investors as returns are more certain, given that the debt component is higher.”
Apart from dual advantage funds, BOI AXA AMC, Religare Invesco AMC and Canara Robeco AMC have filed offer documents for balanced funds/hybrid funds and capital protection oriented funds. Vidya Bala, head mutual funds research at FundsIndia.com says, “The main reason fund houses are keen on such products is because debt is attractive at this point of time. Such funds holds their debt papers till maturity and can gain from the falling interest rates. For equity they invest in pure blue-chip stocks to get capital appreciation.”
Since start of the current calendar year, the RBI has slashed repo rates by 50 basis points to 7.5% and market participants expect further rate cut of another 50 bps over the next one year.
However many participants believe that, investors will gain if they invest in open ended schemes rather than such close ended schemes as returns of such schemes have been below average in the past. “At this point of time investors can look at open ended debt funds that can give good returns in the next 18-24 months as interest rates are going to fall. There is little risk compared to such close ended schemes, but even returns would be better in open ended debt schemes,” concluded Bala.
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