Hybrid schemes lose traction among MFS
Hybrid schemes — which invest in a mix of debt and equity instruments — are losing traction among mutual fund (MF) investors with the category seeing net outflows of over ~9,000 crore this year so far.
“There have been concerns around a few funds in some hybrid categories over their exposure to lower-rated papers. There have also been concerns over inter-scheme transfers,” said Vidya Bala, cofounder of primeinvestor.in.
The number of inter-scheme transfers — where debt instruments held in one scheme is sold to another of the same fund house — saw a spike in April. There were 680 such transactions, worth ~22,452.7 crore, in March. This rose to 829 (worth ~21,814.9 crore) in April. In May, combined net outflows in hybrid schemes (excluding arbitrage) stood at ~2,154.12 crore. For the year thus far, outflows stand at ~9,295.92 crore.
“Panic set in as the equity markets were not doing well; concerns over debt heightened after the Franklin Templeton episode,” Bala added.
On April 23, Franklin Templeton Mutual Fund (MF) announced winding up six of its yield-oriented debt schemes amid a liquidity crisis following lockdown conditions.
Experts say investors are concerned over lack of clarity on how the debt exposure in hybrid funds is managed in the absence of clear-cut regulatory guidelines.
For debt schemes, the Securities and Exchange Board of India (Sebi) has laid out what percentage of exposure a credit risk fund or a corporate bond fund can have to AA- or higherrated papers. But, there is no clear demarcation or stipulated limits on credit ratings that a hybrid fund can take exposure to. The equity markets saw heightened volatility in May amid rising cases of Covid-19, a weak economic outlook, and the government's stimulus package failing to revive confidence.
In May, the 50-share Nifty was down 2.8 per cent after witnessing a strong recovery in the previous
month. The equity markets are still close to 18 per cent down year-todate. In the same period, the aggressive hybrid category has given negative returns of 11 per cent. Balanced hybrid and conservative hybrid have given negative returns of 9 and 3 per cent, respectively. Hybrid funds have also lost sheen after tax treatment on dividends was revised.
“A fair bit of money in hybrid schemes used to go to dividend options. There is a good chance that money would have moved out,” said Kaustubh Belapurkar, director (manager research), Morningstar India.
“Hybrids were also used by firsttime investors looking to come to the equity markets through a graded approach. However, given market volatility, some investors may have moved to lesser volatile avenues,” he added.