A blend of equity and debt investments can insulate your portfolio during market volatility and lend some stability. Now, an aggressive hybrid fund that invests around 65-80 percent of its corpus in equities and the rest in debt instruments may work well. While equities deliver higher returns in the long run, debt investments cushion downfalls. And as they invest at least 65 percent in equities, these funds are treated as equity funds for taxation purposes. DSP Equity & Bond Fund (DEBF) is one such scheme that has managed to deliver above-average returns since its launch. It is part of MC30: Moneycontrol’s curated basket of best mutual fund schemes.
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DEBF invests 70-75 per cent of its portfolio in equity and the rest in debt. Atul Bhole manages the equity portfolio, while the debt portion is taken care of by Vikram Chopra. DEBF’s equity portion is managed with diversified holdings in 60-65 stocks. Bhole believes such diversification of holding a larger number of stocks in the equity portfolio, allocating majorly to large-caps and maintaining a conservative debt portfolio will help in volatility reduction in the overall portfolio.
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Though the fund follows a flexi-cap approach, it invests two-thirds of the equity portion in high-quality large-cap stocks, thus helping reduce risks while generating better returns. In the large-cap bucket, stocks such as Bajaj Finance, Bajaj Finserv, Avenue Supermarts and JK cement gained the most and contributed to the growth in NAV. However, in the last one year mid-cap holdings have risen. Bhole says that he added mid-cap stocks during last Diwali from construction and real estate sectors: Century Plyboards (India), Polycab India and KNR Constructions. They have more than doubled, resulting in an increase in their weightages in the overall portfolio.
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To compensate for its equity risks, DEBF keeps the risks low on the fixed income side. It sticks to commercial papers, certificates of deposit, corporate debt and government securities. It avoids cash calls and prefers to remain fully invested. DEBF invests most of its money in the highest rated debt papers. The fund had a miniscule exposure to the bonds issued by the distressed IL&FS and Dewan Housing Finance during 2018.
Since it manages a conservative debt portfolio, DEBF takes a moderately active duration strategy. Over the last five years, its portfolio average maturity has been between 1.8 - 7 years.
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DEBF has been a decent performer among the peers in the aggressive hybrid funds category. Performance as measured by the five-year rolling return that is calculated from the last 15 years’ NAV data, the fund gave 12 percent average compounded annual return while the category delivered 10.8 percent. Meanwhile, Nifty 50 TRI delivered 11 percent.
