The Indian markets are expected to remain range bound with bouts of volatility in short-term due to the impact of second wave of COVID-19. As different asset classes have varying cycles of performance and move in different direction depending on the market conditions, it is essential that investors review their asset allocation at regular intervals.
A well-diversified asset allocation strategy can assist investors in achieving their investment goals faster and the level of risk that they are comfortable with. In the current market, many risk-averse investors are seeking to invest in hybrid funds because they are deemed less risky than equity funds. Hybrid funds are category of mutual funds that invest in a blend of equity and debt to provide diversification across asset class.
The investment in equity component offers potential higher returns while investment in debt securities provides cushion against high market volatility. Investors looking to have higher allocation to debt securities may consider investing in conservative hybrid funds to generate stable returns.
As mandated by SEBI conservative hybrid funds may invest 75-90% of its total assets in debt instruments while the remaining can be in equities.
Parag Parikh Financial Advisory Services Mutual Fund has launched Parag Parikh Conservative Hybrid Fund, an open-ended hybrid scheme investing predominantly in debt instruments.
On the launch of this fund, Mr Neil Parag Parikh Chairman and CEO of Parag Parikh Financial Advisory Services Mutual Fund said, “We want to replicate the idea behind Parag Parikh Flexi Cap Fund on the debt side. The idea is to have a flexible model where we have the freedom to take advantage of market opportunities without being too constrained. Thus, the scheme will not be boxed into any particular type of debt like a short-term, government bond, or high yield. Parag Parikh Conservative Hybrid Fund will be our debt fund offering with a slice of equity exposure, REITs, and InvITs. The scheme could be considered as a ‘one-stop shop’ for your debt needs.”
Table 1: Details of Parag Parikh Conservative Hybrid Fund
|Type||An open-ended hybrid scheme investing predominantly in debt instruments.||Category||Conservative Hybrid Fund|
|Investment Objective||To generate regular income through investments predominantly in debt and money market instruments. The Scheme also seeks to generate long-term capital appreciation from the portion of equity investments under the scheme. However, there is no assurance or guarantee that the investment objective of the Scheme will be realized.|
|Min. Investment||Rs 5000/- and in multiples of Re 1/- thereafter.
Additional Purchase Rs 1000/- and in multiples of Re 1/- thereafter.
|Face Value||Rs 10/- per unit|
|Entry Load||Not Applicable||Exit Load||
||Benchmark Index||CRISIL Hybrid 85+15 – Conservative Index TRI|
|Issue Opens:||May 7, 2021||Issue Closes:||May 21, 2021|
(Source: Scheme Information Document)
What will be the Investment Strategy for Parag Parikh Conservative Hybrid Fund?
The scheme will predominantly invest in Debt and Money market instruments (75-90% of its assets) to generate regular income. Investment in debt securities will be guided by credit quality, liquidity, interest rates and their outlook. The scheme will retain the flexibility to invest in the entire range of debt securities (including securitised debt) and money market instruments.
The investment team will carry out rigorous credit evaluation of the issuer company proposed to be invested in which will analyse the operating environment of the issuer, 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.
Parag Parikh Conservative Hybrid Fund will follow a flexible model to manage the debt portion that will allow the fund manager to move between accrual and duration related instruments depending on the interest rate outlook. It also holds the flexibility to hold securities across all maturities with varying credit profile such as sovereign, state government, PSU, corporate securities, etc.
The Scheme also seeks to generate long-term capital appreciation from the portion of equity investments under the scheme where it will invest 10-25% of its assets. The allocation can be increased or reduced using arbitrage. The aim of equity strategy will be to build a portfolio of companies diversified across major industries, economic sectors and market capitalization that offer an acceptable risk reward balance.
It may also invest up to 10% of its assets in units of REITs and InvITs for diversification and subject to necessary stipulations by SEBI from time to time
The fund manager will seek to play out the yield curve and exploit anomalies if any in portfolio construction after analysing the macro-economic environment including future course of system liquidity, interest rates and inflation along with other considerations in the economy and markets.
Under normal circumstances, asset allocation will be as under:
Table 2: Asset Allocation of Parag Parikh Conservative Hybrid Fund
|Instruments||Indicative Allocation (% of assets)||Risk Profile|
|Debt securities (including securitized debt) & Money Market instruments||75||90||Low to Medium|
|Equities & Equity related instruments||10||25||Medium to High|
|Units issued by REITs and InvITs||0||10||Medium to High|
(Source: Scheme Information Document)
Who will manage Parag Parikh Conservative Hybrid Fund?
Mr Rajeev Thakkar, Mr Raunak Onkar and Mr Raj Mehta will be the dedicated fund managers for this scheme.
Mr Rajeev Thakkar is CIO and Equity Fund Manager at Parag Parikh Financial Advisory Services and has over 20 years of experience in merchant banking, managing fixed income portfolio, broking operations, and PMS operations for over two decades. Prior to this, he was working as a Fund Manager for PMS Service of PPFAS managing a portfolio of around Rs. 300 crores, DIL Vikas Finance Ltd. as Manager Fixed Income Securities, and Prime Securities as Manager Investment Banking.
Mr Thakkar is B. Com. (Bombay University), Chartered Accountant, CFA Charter Holder and Grad ICWA. Currently other schemes under his management are Parag Parikh Flexi Cap Fund (PPFCF) and Parag Parikh Tax Saver Fund (PPTSF).
Mr Raunak Onkar is Associate Fund Manager at Parag Parikh Financial Advisory Services and has over 10 years of experience in the capital market. He started his career with Parag Parikh Financial Advisory Services Limited, following his internship, in the year 2009. He joined PPFAS as a research analyst. He was appointed as Head- research in the year 2011.
His qualifications include BSc. IT (Bombay University) and MMS- Finance (Bombay University). Currently scheme under his management are Parag Parikh Flexi Cap Fund (PPFCF) and acts as Co- Fund Manager for Parag Parikh Tax Saver Fund (PPTSF).
Mr Raj Mehta is Fund Manager at Parag Parikh Financial Advisory Services and has over 8 years of experience in investment research. He started his career with PPFAS Asset Management Pvt. Ltd as an intern and later as Research Analyst.
Mr Mehta is B.Com (Mumbai University), M.Com (Mumbai University), Chartered Accountant and CFA Charter Holder. Currently other schemes managed by him are Parag Parikh Flexi Cap Fund (PPFCF), Parag Parikh Liquid Fund (PPLF) and Parag Parikh Tax Saver Fund.
Fund Outlook – Parag Parikh Conservative Hybrid Fund
Parag Parikh Conservative Hybrid Fund will aim to predominantly invest in state and central government securities and high quality PSU debt and AAA rated debt instruments and it would have a small exposure to corporate securities. The scheme will invest small portion in equity that consist of stocks with a high dividend yield and a significant margin of safety.
This scheme is hybrid owing to the likely inclusion of three different asset classes within one scheme. The endeavour is to offer investors regular income and capital appreciation by investing across asset classes with higher allocation to debt for conservative investors.
Parag Parikh Conservative Hybrid Fund will aim to invest in high quality debt securities to reduce credit risk and generate reasonable returns with low volatility. However, the portfolio could still be prone to interest rate fluctuation.
If you are looking to earn better returns than pure debt schemes but do not have the risk profile to invest in pure equity schemes, you can consider investing conservative hybrid funds. But do note that most Conservative Hybrid Funds tend to have a predominant exposure towards medium to longer duration debt instruments along with significant equity component and are therefore volatile in nature.
Parag Parikh Conservative Hybrid Fund is suitable for investors who are not avid timers of interest rate cycle, those who could stomach moderate risk with volatility in the NAV and those having a long-term investment horizon of more than 3years.
This article first appeared on PersonalFN here