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Investors with a moderate risk profile can consider investing in the top-performing funds from the aggressive hybrid category.
Aggressive hybrid schemes allocate 65-80 per cent of their corpus to equity investments, while the rest is invested in debt instruments. The higher allocation to equity can help deliver good returns in the long run. Debt exposure helps cap losses in market downturns.
These funds are treated like equity funds for taxation purposes.
Funds under the aggressive hybrid category depreciate less during market corrections and appreciate less during rallies compared with other equity categories. Lower volatility can result in superior risk-adjusted returns compared with many other equity-oriented categories over the long term.
Investing through the SIP (systematic investment plan) route is advisable to average costs and ride out market volatility.
DSP Equity & Bond is one such aggressive hybrid fund with a steady long-term track record. Since its launch over two decades ago, the scheme has delivered a healthy compounded annualised growth rate (CAGR) of 14 per cent.
It is rated four-star by BusinessLine Portfolio Star Track MF Ratings .
Performance
Performance measured by the five-year rolling returns calculated from the past seven years’ NAV history, shows that the fund delivered a CAGR of 13 per cent, while the category clocked 11.8 per cent. The Nifty 50 TRI generated a CAGR of 11.6 per cent in the same time period.
The fund’s performance, especially during falling equity markets, has been notable. For instance, in the market downturn in 2015 and the recent one between February 2020 and March 2020, it registered a return of -8.7 per cent and -26 per cent, respectively, thanks to its higher allocation to large-cap stocks, while the category posted -11.8 and -28 per cent, respectively. The fund performed decently in rising markets, too — either matching or generating higher returns than the category.
Portfolio
The equity and debt portfolios of the fund contain quality names with moderate levels of risks taken. The scheme invests 70-75 per cent of its portfolio in equity and the rest in debt.
It mostly maintains two-thirds of its equity portfolio in large-caps and the rest in mid- and small-cap stocks. Financial, chemicals and constructions are the top three sectors.
On the debt side, the fund minimises credit and interest-rate risk by investing in highly rated debt instruments with short maturity profiles.
However, it takes moderate duration calls in government securities to maximise returns. The avverage maturity of the portfolio as of July 2020 is 5.1 years.
Most securities in the portfolio are rated AAA. However, 4.2 per cent of the portfolio isinvested in AA rated papers including Green Infra, KKR India Financial Services and Bank of Baroda.
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