Investors turn to hybrid funds on high valuations, shows data

In October, hybrid schemes received net inflows in excess of Rs 10,000 crore, taking the total inflows in such schemes in FY22 to Rs 79,431 crore

Hybrid schemes have garnered higher inflows than equity-oriented schemes this financial year, with investors booking profits and rebalancing their portfolios amid a steep rally in Indian equities.

In October, hybrid schemes received net inflows in excess of Rs 10,000 crore, taking the total inflows in such schemes in financial year 2021-22 (FY22) to Rs 79,431 crore. Equity schemes have received inflows of Rs 64,651 crore in the same period. All the hybrid sub-categories, with the exception of arbitrage and hybrid aggressive/balanced schemes, saw inflows in October.

“Broadly the mood to invest in equities remains but we do see an element of profit booking among investors,” said Akhil Chaturvedi, chief business officer, Motilal Oswal AMC. “At the same time, higher net flows in the hybrid and balance advantaged category signifies that retail investors are taking a cautious view at current market levels and are limiting their investments in equities. This strategy is a good way to use proprietary valuation models of various mutual funds and have adequate exposure to equities to not miss out from any upside; and at the same time having enough cash to deploy in event of any meaningful corrections.”

“When it comes to equity, investors are anticipating that these levels are not sustainable and it is not the right time to do lump sum investments. So, the thought process is let’s temporarily park the money in hybrid funds,” added Kirtan Shah, CEO, SRE Wealth.

Among the hybrid sub-categories, the dynamic asset allocation/balance advantaged funds have got the most inflows at Rs 40,594 crore in FY22. In August, the category saw inflows of Rs 16,571 crore thanks to the success of SBI Balanced Advantage Fund, a new fund offer, which collected Rs 14,551 crore. With assets of Rs 1.56 trillion as of October 31, the category has the most assets among hybrid funds.

For a one-year period, the dynamic asset allocation category has returned 21.3 per cent, according to Value Research. This is more than all other hybrid categories except multi-asset allocation and balanced hybrid funds.

The dynamic asset allocation strategy involves investing in equity, debt and derivatives. When equity markets are high, it increases allocation to debt and vice versa. This allocation differs from one fund house to another.

N S Venkatesh, CEO, Amfi, said: “It is heartening to see investors sticking to making mature choice by opting for schemes that offer prudent mix of debt and equity through balanced advantage schemes, flexi-cap schemes, and choosing mutual funds as an investment for long-term financial planning for their own retirement and children’s welfare. This is quite evident from the monthly SIP contribution getting consolidated at record high of Rs 10,518 crore.”

The benchmark BSE Sensex has now slipped below the psychological 60,000-mark but is still up 25 per cent year-to-date.