Best investment option for huge savings in HDFC Hybrid Equity

HDFC Hybrid Equity Fund (HHEF) is one of the aggressive hybrid funds that aim to generate capital appreciation through investments in a mix of equity and debt instruments.

Launched in September 2000, the fund manages the most significant assets worth Rs 20,926 crore. The fund is managed by Mr. Chirag Setalvad (since April 2007), who has more than 20 years of fund management and equity research experience.

HHEF is ranked behind many of its peers on a 1-year and 2-year rolling return basis and is one of the top performers on a 3-year and 5-year rolling return basis. Other top performers in the category include Mirae Asset Hybrid Equity Fund, ICICI Pru Equity & Debt Fund, Canara Robeco Equity Hybrid Fund, SBI Equity Hybrid Fund, and Sundaram Equity Hybrid Fund.

As regards the risk-return profile, the fund’s volatility was lower than most category funds but higher than the index. It has rewarded investors with reasonable risk-adjusted returns, nevertheless.

HDFC Hybrid Equity Fund Investment Strategy

Classified as an aggressive hybrid fund, HDFC Hybrid Equity Fund can invest 65–80% of its assets in equity related instruments and 20–35% in debt instruments. There is the flexibility to invest in market capitalization.

The fund’s equity strategy includes a focus on quality businesses with reasonable prospects for growth, financial robustness, and sustainable business models, which are available at acceptable valuations. It follows a bottom-up approach to select stocks during market capitalization and aims to maintain a diversified portfolio at all times.

On the debt line, the fund can invest in the entire debt instrument portfolio. The allocation in debt instruments is based on credit quality, liquidity, interest rates, and their outlook.

HHEF follows a multi-cap approach with a large-cap bias to invest in market capitalization. The fund typically allocates about 70 percent of its equity portfolio.

The allocation of funds to large caps has been in the range of 45–55 percent in the last 12 months, while it has a significant allocation of 10–15 percent to mid-cap and smaller-cap from 5–10 percent.  The fund has slightly reduced its exposure to medium and small caps over the past year, while large caps have increased.

HHEF invests about 30 percent of its assets for moderate to high rated debt instruments. The debt portfolio mainly consists of corporate debt and government securities.

Suitability of HDFC Hybrid Equity Fund

HHEF is investing in a mix of equity and debt instruments that can help exploit the changing dynamics in asset classes. While the equity portion may allow capital growth, the debt portion can serve as a cushion against market volatility. HHEF invests in a well-diversified portfolio in market capitalization. Its large-cap bias can provide stability, while its mid- and small-cap exposures can potentially produce high yields. Although the fund has been weak in the short term, it has rewarded investors well in a long time. It is suitable for investors with a high risk of 5 years or more and an appetite for investment horizons.

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