Mutual Funds
Hybrid funds: Herd mentality of fund houses continue

Despite the poor response to other similar schemes which have been launched in the past, Franklin Templeton MF and Union KBC MF plan to launch their own hybrid schemes

Franklin Templeton India Allocation Fund and Union KBC Asset Allocation Fund, will offer a mix of equity, debt and gold in their portfolio, according to their offer documents filed with the Securities and Exchange Board of India (SEBI). These schemes offer nothing different from the 19-odd schemes that are already available in the market. The total corpus of these 19 schemes amount to just Rs2,624 crore which is less than the corpus of any one of the top 15 equity diversified schemes. More than half the schemes have a corpus less than Rs100 crore and six of these schemes have failed to accumulate even Rs10 crore. Why has the response been so poor? Underperformance could be one of the reasons.

 In our recent analysis, Hybrid Funds: Adding gold did not help , schemes having gold as a part of the portfolio had a lacklustre performance. Just half of them were able to outperform their composite benchmark. Having gold as an investment is risky, apart from this investors have to decide how much they can put in such a fund and how much returns it is expected to generate.

These schemes have varied asset allocation strategies as well. For some fund companies the allocation can go up to 60% in gold, whereas, others restrict themselves to a maximum of 20%-35% in gold. FT India Allocation Fund, which is a Fund of Funds hybrid scheme plans to follow a dynamic asset allocation strategy, where, if the fund manger feels he can invest nil or the entire assets in equity funds, debt funds or gold ETFs. The fund manager is free to choose his own asset allocation. So there may be a time when the fund manager may be fully invested in equity if he sees a big opportunity there or he can move entirely out of equity and keep the assets invested in debt or gold or both. This kind of dynamic asset allocation strategy could be highly risky for the investor. The fund proposes to primarily invest in domestic equity, fixed income, liquid schemes of Franklin Templeton Mutual Fund and domestic gold ETFs.

Union KBC Asset Allocation Fund will be offering investors two different plans. The aggressive plan would invest 55% to 75% in equity, 5% to 25% in debt and up to 20% in gold ETFs. The second plan, which is the conservative plan, will have a lesser allocation towards equity (15% to 25%) and more towards debt (55% to 85%). The allocation towards gold ETFs will remain the same.

Hybrid schemes, especially those that have gold as a part of their portfolio, are best avoided. The returns of these schemes have been erratic in the past. But if one is looking for capital appreciation, which is the prime investment objective of these schemes, investing in pure equity schemes would be the best bet for a long-term investment. But where is gold headed, no one knows. Hybrid schemes are too risky for the short-term and do not look too promising for the long term as well. If one is looking to invest for the long-term, keep it simple, choose an equity scheme with consistent performance.


Scheme details:

FT India Allocation Fund

Benchmark: 25% S&P CNX 500 + 25% CRISIL Short Term Bond Fund index + 25% CRISIL Liquid Fund index + 25% Gold domestic prices

Expense ratio: 2.50%

Exit Load: 1% if redeemed/switched out within 1 year of allotment


Union KBC Asset Allocation Fund


Aggressive Plan: 70% S&P CNX Nifty + 15% CRISIL Composite Bond Fund Index + 15%  CRISIL Gold Index

Conservative Plan: 15% S&P CNX Nifty + 70% CRISIL Composite Bond Fund Index + 15% CRISIL Gold Index

Expense ratio: 2.25%

Exit load: 0.50% if units are redeemed/switched out within 6 months from the date of allotment; Nil thereafter.



Nem Chandra Singhal

5 years ago

Well said about hybrid funds. Most of the Indians own gold in its physical forms. Most of the Indians, particularly, ladies will have more than 10 % their assests in gold. Basically, Indian are gold hungry as the faith on the paper assets are not strong than on real/ physical assets. Hence, the equity MFs are only to be subscribed by the average person.

Ramesh Poapt

5 years ago

Hybrid funds too risky in the short term?surprising!If it is risky equity funds can b double risky than hybrid ones in short,medium,long term!As at 30-6-12,5 yrs return in nifty is 4.09%, in Balanced fund it is 4.55% and in MIP it is 6.17% i.e. Balanced is better than Eqty and MIP us better than Balanced category!On account of uncertain national and global factors for next two years,your above view is not correct.Even investors who are not conservative,should consider above category for proven schemes like HDFC Balanced.Gold option looks compulsion in the present scenario,and may not be that bad!Yes, fund or fund concept is not palatable as FOF is not taxfree like Eqty,Balanced scheme.

Monsoon deficiency to narrow down in coming days: IMD

As of now, the deficiency in rainfall is 22% and it will fill up in the coming days, as monsoon is likely to improve in the eastern, central and Indo-Gangetic plains says the IMD

New Delhi: Monsoon deficiency is expected to narrow down in the coming days with rains likely to improve in the eastern, central and Indo-Gangetic parts of the country, India Meteorological Department (IMD) said on Thursday, reports PTI.


"As of now, deficiency is 22%. The deficiency will fill up in the coming days, as monsoon is likely to improve in the eastern, central and Indo-Gangetic plains," IMD Director General LS Rathore told reporters in the capital after meeting with Food Minister KV Thomas.


Although the monsoon is not active, it is not sluggish either he said, adding that the eastern coast, central India and north east are getting fairly good rains. Even Maharashtra and parts of peninsula are having rain.


"The only concern is north west India and interior peninsula," Rathore said.


On the likely impact of deficient rains on kharif crops, Rathore said, "There is concern about coarse cereals and situation of rest crops is fine."


India had produced a record 252.56 million tonnes of foodgrains in 2011-12 crop year (July-June) on good monsoon last year.


Monsoon rains are crucial for the agriculture sector, which contributes about 15% to the country's GDP, as only 40% of the total cultivable area is under irrigation.


Bank credit offtake declines in the first half of July

For the fortnight ended 13th July, total outstanding credit was Rs48.7 lakh crore while deposit growth has also declined to Rs80,536 crore

Mumbai: Growth of credit offtake from banks has declined by Rs34,500 crore in the first half of July compared to previous fortnight, reflecting slowdown in demand, reports PTI.
The total outstanding credit was Rs48.7 lakh crore for the fortnight ended 13th July down from Rs49.1 lakh crore in 29 June 2012, RBI said.
At the same time, deposit growth has also declined by Rs3,600 crore in the first half of this month.
Total bank deposits have fallen to Rs80,536 crore in the latest fortnight against Rs84,136 crore.


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