Mahindra Mutual Fund has launched Mahindra Hybrid Equity Nivesh Yojana (MHENY), an open-ended aggressive hybrid scheme investing in equity and equity related instruments and in debt and money market instruments.

Aggressive Hybrid Funds were erstwhile balanced funds, that were supposed to have a 50:50 allocation to equity and debt. But the proportion of equity varied ranging from a minimum 65% to as much as 80%. This led to inconsistent investment risk for an investor.

Hence for the welfare of the investors, under the new recategorization norms, mutual funds are permitted to offer either one from Balanced Hybrid or Aggressive Hybrid as a new sub-category of hybrid funds. And as per the norm, Aggressive hybrid fund will invest 65% to 80% of total assets in equities and 20% to 35% in debt instruments.

[Read: Aggressive Hybrid Fund or Balanced Advantage Fund, Which Is A Better Option?]

Being an Aggressive Hybrid Fund, Mahindra Hybrid Equity Nivesh Yojana has the flexibility to invest across market cap segment and is sector agonistic.  Since it has an equity exposure of a minimum of 65%, it does carry equity investment risk. The volatility is marginally lower when compared to a pure equity scheme. Thus, MHENY is suitable for anyone who has a stomach to the bare moderate-to-high risk and has an investment time horizon of at least 5 years.

Table 1: Details of Mahindra Hybrid Equity Nivesh Yojana (MHENY)

Type An open-ended hybrid scheme investing predominantly in equity and equity related instruments Category Aggressive Hybrid Fund
Investment Objective To generate long term capital appreciation and income through investments in equity and equity related instruments and investments in debt and money market instruments.

However, there can be no assurance that the investment objective of the Scheme will be achieved. The Scheme does not assure or guarantee any returns.
Min. Investment Rs 1000 and in multiples of Re 1 thereafter Face Value Rs 10 per unit
Plans  • Direct*
• Regular

* default option
Options • Growth*
• Dividend (Payout & Reinvestment*)

*Default option
Entry Load Not Applicable Exit Load For exit within 12 months from the date of allotment:
  • For 10% of investment – Nil
  • For remaining investments – 1.00%
  • For exit after 12 months from the date of allotment – Nil
Fund Manager Mr Srinivasan Ramamurthy and Mr Rahul Pal Benchmark Index CRISIL Hybrid 25+75 – Aggressive Index
Issue Opens June 28, 2019 Issue Closes: July 12, 2019

(Source: Scheme Information Document)

How will the Mahindra Hybrid Equity Nivesh Yojanaallocate its assets?

Under normal circumstances, the scheme will allocate its assets as follows:

Table 2: MHENY ‘s Asset Allocation

Instruments Indicative Allocation (% of Total Assets) Risk Profile
Minimum Maximum High/ Medium/ Low
Equity and Equity related Securities^ 6580 High
Debt and Money Market Securities^ (including CBLO, Reverse Repo and units of liquid mutual fund schemes) 2035Low to Medium
Units issued by REITs & InvITs 0 10Medium to High

^ including derivative instruments to the extent of 50% of the Net Assets of the Scheme. Investment in derivatives shall be for hedging, portfolio balancing, and such other purposes as maybe permitted from time to time under the Regulations and subject to guidelines issued by SEBI/RBI from time to time.

(Source: Scheme Information Document)

What will be the Investment Strategy?

Equity Strategy: The fund manager will follow an active management style. The Mahindra Hybrid Equity Nivesh Yojana will focus on creating an appropriately diversified portfolio of companies with a long-term perspective. The Scheme will follow a top-down approach to select sectors and follow a bottom-up approach to pick stocks across the sectors based on the appropriate business environment, business model and execution capability. The Scheme will focus on extensive macro and micro research to identify the appropriate economic environment and reasonable price entry and exit points.

The Scheme by utilizing a holistic risk management strategy will endeavour to manage risks associated with investing in equity markets. The Scheme has identified the following risks and design risk management strategies, which are embedded in the investment process to manage these risks:

  1. Quality risk – Risk of investing in unsustainable/weak companies
  2. Price risk – Risk of overpaying for a company
  3. Liquidity risk- High impact cost of entry and exit
  4. Volatility risk –Volatility in price due to company or portfolio specific factors
  5. Event risk – Price risk due to a company/sector specific or market event

Fixed Income Strategy:

In terms of the risk-return profile, the Scheme is positioned to generate long term income with accrual and capital appreciation. Hence the portfolio strategy will seek to generate a return by balancing the maturity and credit profile to compensate for the risk as per the objectives of the Scheme.

The fund manager will seek to play out the anticipated movement in the interest rate by changing the maturity of the underlying portfolio, and also anticipated change in the term structure (flattening /steepening) of the yield curve in the portfolio construction after analysing the macroeconomic environment including future course of system liquidity, interest rates and inflation along with other considerations in the economy and markets.

The fund manager will also seek to play the anticipated change in credit spreads based on historical spread analysis and an analysis of the credit of the issuer. The fund manager will seek to generate alpha by investing in papers giving superior returns after an in-depth analysis of micro and macro factors.

The investment team of the fund manager, as a mitigation and risk control procedure, will carry out rigorous credit evaluation of the issuer company proposed to be invested in. The credit evaluation will analyse the operating environment of the issuer, the sector analysis, business model, management, governance practices, quality of the financials, the past track record as well as the future prospects of the issuer and the financial health of the issuer.

[Read: 6 Symptoms Of Bad Financial Health]

Who will manage Mahindra Hybrid Equity Nivesh Yojana?

Mahindra Hybrid Equity Nivesh Yojanawill be managed by Mr Srinivasan Ramamurthy and Mr Rahul Pal.

Mr Srinivasan Ramamurthy is the lead fund manager who will be handling the equity portion of the scheme. He has an Engineering degree, plus has done an MBA from Mumbai University.

Before joining the Mahindra Asset Management Co. Pvt. Ltd. as the Fund Manager of Equity since June 2018, he worked as a Fund Manager at IDBI Federal Life Insurance Company Ltd for six years. Prior to that, Mr Ramamurthy worked as a Research Analyst at IIFL Securities Ltd, Kim Eng Securities India Pvt. Ltd and Credit Suisse Securities (India) Pvt. Ltd.

Currently, at the fund house, some of the funds which he manages to include Mutual Fund Badhat Yojana and Mahindra Dhan Sanchay Equity Savings Yojana.

Mr Rahul Pal will be handling the Fixed income portion(debt) of the Mahindra Hybrid Equity Nivesh Yojana. He holds an Honorary bachelor’s degree in commerce (B. Com (H)) from St. Xavier’s College and is a qualified Chartered Accountant (ACA).

Currently, at the fund house, Mr Pal is the Head of Fixed Income. Prior to joining Mahindra Asset Management Company, he was associated with Taurus Asset Management Company Limited as the Head of Fixed Income. He has also worked with Sundaram Asset Management Company Limited as Fund Manager of Fixed Income. In these roles, he was responsible for managing and overseeing the Fixed Income Portfolios.

Some of the schemes which Mr Pal manages at the fund house include Mahindra Liquid Fund, Mahindra Low Duration Bachat Yojana, Mahindra Credit Risk Yojana and Mahindra Dhan Sanchay Equity Savings Yojana.

The outlook for Mahindra Hybrid Equity Nivesh Yojana:

To capture the dual potential of equity and debt investment, Mahindra Hybrid Equity Nivesh Yojana is launched. To achieve the stated objective of the scheme, the fund managers will actively manage the scheme (equity and debt portion) and will try to mitigate the risk emanating from equity and debt investments.

But currently, the equity markets have been in a tailspin, on account of the Budget announcement of surcharge. The average P/E of S&P BSE SENSEX trails at 29.30x. The market corrections have pushed the P/E multiple of large-cap, mid cap and small cap index to 26.31x, 26.02x and 31.72x respectively.

These valuations don’t justify, the earnings of the corporates, there are governance issues with a few companies, and some companies that are debt-free aren’t cheap.   

The investment by fund managers in debt & money market securities is to position the portfolio in the favourable short-mid-long bonds to avoid extreme risk. The 10-Year Benchmark Yield in G-Sec slipped below to 6.6%. It has been dipping since the successive 25 basis point rate cut in repo rates.

Plus, the Monetary Policy Committee (MPC) changed the stance of monetary policy from neutral to accommodative in the last bi-monthly monetary policy statement for 2019-20 (held in June 2019). It was done in order to achieve the medium-term target for consumer price index (CPI) inflation of 4 per cent inflation and to boost the subdued GDP.

[Read: Why A Slowdown in GDP Matters To You As An Investor?]

Along with global macroeconomic factors of global cues, changing regulatory goalposts in e-commerce, budget announcements and implementation of new laws can impact the equity markets. And it remains to be seen how the new Modi cabinet tackle the GDP growth (which seems to have lost the momentum of late), the inflation trajectory, and the fiscal deficit as this affects the equities.

Hence, amidst the extreme turbulence constructing the portfolio would not be easy and may inflict very-high-risk. Thus, the fortune of the Mahindra Hybrid Equity Nivesh Yojana would closely be linked to how the fund managers play the investment strategy in the endeavour to accomplish the investment objective of MHENY.

[Read: Looking for The Best Aggressive Hybrid Funds For 2019? Read This!]

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