Traditionally conservative Indian investors have been choosing low-risk options like Bank FDs for investment purposes to avoid market volatility. However, with the Indian economy catapulting to a higher growth rate, investment in asset classes like debt and equity can potentially deliver attractive returns.

However, in 2022 due to headwinds or challenges in play, you need to tone down your return expectations. The Indian markets have seen high volatility due to the looming threat of the Omicron wave, Union Budget, US Fed comments on increasing interest rates, tensions between Russia and Ukraine, and other domestic and global factors. The potential for income generation has been limited on account of taxes and inflation. Experts believe hybrid fund schemes are ideal for ‘conservative’ investors to create wealth to achieve their long-term goals. A fund with a unique management strategy that adjusts to the prevailing market conditions may generate optimal returns.

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 in conservative hybrid funds. By investing in both equity and debt asset classes, it provides diversification benefits, and this high-quality portfolio has the potential of creating consistent returns.

ITI Mutual Fund has launched ITI Conservative Hybrid Fund, it is an open-ended hybrid scheme investing predominantly in debt instruments.

On the launch of this fund, Mr George Heber Joseph, Chief Executive Officer and Chief Investment Officer at ITI Mutual Fund, said, “We are quite thrilled to offer ITI Conservative Hybrid Fund to investors, and we believe it has a very high potential to attract money from investors who are predominantly investing in traditional savings products.”

Table 1: Details of ITI Conservative Hybrid Fund

Type An open-ended hybrid scheme investing predominantly in debt instruments. Category Hybrid Fund
Investment Objective The Scheme seeks to generate regular income through investments in debt & money market instruments, along with capital appreciation through limited exposure to equity and equity-related instruments. However, there can be no assurance that the investment objective of the scheme will be realized.
Min. Investment Rs 5,000/- and in multiples of Re 1 thereafter. Additional Purchase Rs 1,000/- and in multiples of Re 1 thereafter. Face Value Rs 10/- per unit
SIP/SWP/STP Available
  • Direct
  • Regular
  • Growth
  • IDCW (Income Distribution cum Capital Withdrawal)
Entry Load Not Applicable Exit Load Nil
Fund Manager – Mr Vikrant Mehta
– Mr Pradeep Gokhale
Benchmark Index Nifty 50 Hybrid Composite Debt 15:85 Total Return Index
Issue Opens: February 21, 2022 Issue Closes: March 07, 2022

(Source: Scheme Information Document)  

The investment strategy for ITI Conservative Hybrid Fund will be as follows:

ITI Conservative Hybrid Fund seeks to generate regular income through investments in debt & money market instruments, along with capital appreciation through equity and equity-related instruments. Within fixed income, the portfolio would be actively managed to optimize returns within the respective asset class.

The investment strategy follows a unique blend of debt and equity strategies. The allocation to the debt portion will endeavour to generate accrual Income and opportunistically aim for duration gains by investing in high-quality – Sovereign, AAA, A1+ rated bonds. The allocation between equity and debt is decided using research-based principles based on fundamental factors such as Valuations – Trends – Volatility (Research Principles).

The fund manager will allocate the assets of the scheme considering the prevailing interest rate outlook & the liquidity of the different instruments. Such outlook will be developed by in-house assessment of various macro factors like economic growth, inflation, credit pick-up, liquidity, and other such factors as considered relevant.

The scheme will invest a small portion in equity and equity-related instruments of companies that are part of the Nifty50 Index. The Fund Manager will pick stocks from the Nifty index, predominantly good companies with market leadership, low leverage, and attractive valuations.

It may also invest up to 10% of its assets in units of REITs and InvITs for diversification and subject to necessary stipulations by the SEBI from time to time.

Under normal circumstances, the Asset Allocation will be as under:

Table 2: Asset Allocation for ITI Conservative Hybrid

Instruments Indicative Allocation (% of assets) Risk Profile
Minimum Maximum High/Medium/Low
Debt and Money Market Instruments 75 90 Low to Medium
Equity and Equity related instruments 10 25 High
Units issued by REITs & InvITs 0 10 Medium to High

(Source: Scheme Information Document)  

Who will manage ITI Conservative Hybrid Fund?

Mr Vikrant Mehta and Mr Pradeep Gokhale will be the designated fund managers for this scheme.

Mr Vikrant Mehta has over 25 years of extensive experience in Fixed Income Markets. He holds a Master’s Degree in Engineering from Kiev Polytechnical Institute, Ukraine, and he is also a Chartered Financial Analyst (CFA) from ICFAI. Prior to this, he was associated with Indiabulls Asset Management Co. Limited as the Head – Fixed Income, PineBridge Investments as Head of Fixed Income, and he has held executive positions in organisations like NVS Brokerage Private Ltd. and JM Morgan Stanley Fixed Income Securities Pvt. Ltd.

At ITI AMC, Mr. Mehta currently manages ITI Ultra Short Duration Fund, Co-Fund Manager of ITI Liquid Fund, ITI Overnight Fund, ITI Arbitrage Fund, ITI Dynamic Bond Fund, and ITI Banking & PSU Debt Fund.

Mr Pradeep Gokhale is a Chartered Financial Analyst (CFA), Chartered Accountant (CA), and graduate with over 25 years of work experience in Fund Management, Equity Research, Credit Evaluation & ratings. Prior to this, he was associated as a Senior Fund Manager – Equities with Tata Asset Management Ltd.; he was Head of Financial Sector and Securitisation Ratings at CARE Ratings Ltd. He has also worked in corporate finance departments of companies like Bombay Dyeing, Tata International, and Lubrizol India Ltd.

At ITI AMC, Mr. Gokhale currently manages ITI Multi-Cap Fund, ITI Long Term Equity Fund, ITI Balanced Advantage Fund, ITI Small Cap Fund, ITI Large Cap Fund, ITI Value Fund, ITI Banking, and Financial Services Fund, ITI Mid Cap Fund and ITI Pharma and Healthcare Fund.

Fund Outlook – ITI Conservative Hybrid Fund

ITI Conservative Hybrid Fund aims to invest in high-quality debt and money market instruments, along with limited equity exposure in the leading Nifty 50 Index stocks. The scheme offers investors with higher flexibility as it adjusts debt and equity allocation based on the prevailing market scenario,

The scheme seeks to generate returns irrespective of the market cycles, as the fund actively manages Debt & Equity allocation for maximum benefits. The unique blend of active debt management into high-quality credit with no exposure to riskier instruments like perpetual bonds and passive equity management that avoids the individual stock, market cap & sector bias provides investors with significant returns.

Although the ITI Conservative Hybrid Fund will aim to invest in high-quality debt securities to reduce credit risk and generate reasonable returns with low volatility, it could still be prone to interest rate fluctuation. Conservative Hybrid Funds tend to have a predominant exposure towards medium to longer duration debt instruments along with significant equity components and are therefore volatile in nature.

Do note that according to the Union Budget 2022-23, there may be higher-than-expected government borrowings that can negatively impact the bond yields. In addition, the US Federal Reserve’s announcement of a hike in interest rates from March 2022, plus owing to the fact going forward, RBI is on the path to monetary policy normalisation and the recent Russia-Ukraine tension and a surge in crude oil prices may pose a risk to the economic growth. This is also weighing down on the Indian debt market sentiments. As a result, the bond market is expected to remain volatile in the near term. The interest rate risk amidst the dynamic market conditions is likely to have a bearing on the scheme’s performance.

Thus, this scheme is suitable for investors who are not avid timers of the interest rate cycle, those who could stomach moderately high risk with volatility in the NAV, and those with a long-term investment horizon.

This article first appeared on PersonalFN here

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