Hybrid funds see₹27,220-crore inflow in June quarter of FY22

HYBRID FUNDS HAD SEEN A NET WITHDRAWAL OF ₹12,862 CR IN THREE MONTHS ENDED DECEMBER 2020

NEW DELHI: Hybrid funds are getting traction from investors with such instruments witnessing net inflow of ₹27,220 crore in three months ended June, more than double from the preceding quarter.

Hybrid funds are mutual fund schemes that typically invest in a combination of equity and debt securities and sometimes to other asset categories such as gold.

Nikhil Kamath, co-founder and CIO, True Beacon and Zerodha, said equity market valuations seem to be frothy currently, and this is compelling market participants to consider more generalized products as compared to equity-focussed ones.

“Major central banks across the globe are taking interest rate hikes and that is going to spill over to India. This, in turn, makes debt a favourable asset class once again after the low interest-rate environment,” he added.

Harshad Chetanwala co-founder of MyWealthGrowth.com said investors are evaluating hybrid funds as markets have been near all-time high and some investors would like to reduce the risk and at the same time participate in equity markets.

According to data by Association of Mutual Funds in India (Amfi), hybrid funds witnessed net inflow to the tune of ₹27,220 crore in quarter ended June 2021, much higher than ₹13,055 crore in three months ended March.

However, such funds had seen a net withdrawal of ₹12,862 crore in three months ended December 2020.

To investors, hybrid funds help capitalise from the investment opportunities in the equity markets, provide stability of the debt markets and strategic diversification of gold, which could sustain the portfolio when other two asset classes struggle, Himanshu Srivastava, associate director manager Research, Morningstar India, said.

“The importance of asset allocation cannot be overstated, and over the years, investors have increasingly started to comprehend that. Hybrid fund just offers the same in a ready format. With equity, debt as well as gold performing well in recent times, these funds have expectedly attracted investor interest,” he added.

Of ₹27,220 crore inflow seen in hybrid funds, staggering ₹20,825 crore came into arbitrage funds and ₹5,120 crore into balanced advantage funds.

Arun Kumar, head of Research at FundsIndia, said balanced advantage funds are a mid-path solution that most investors are using to take reasonable equity exposure with the inbuilt mechanism to automatically increase equity allocation if market corrects. This is why the category is getting good inflows in recent months.

On the other hand, arbitrage funds are usually used as an alternative to liquid funds and they have similar returns over a 6 month cycle but with slightly higher volatility profile.

The key advantage is that they enjoy equity taxation which makes it attractive as a short-term alternative to liquid funds, he said.