Monetary tightening and fears of global recession have led to a sharp fall in equities. Most experts believe the market will continue to see turbulence as central banks are at the beginning of a rate-hike cycle.
Given the change in market dynamics, mutual fund (MF) players are advising investors to opt for hybrid funds — a low volatile option, compared to pure-play equity funds, a report by Business Standard stated.
It further noted that in the past three months, large-cap funds are down 5.57 percent on average while mid-cap and small-cap funds have given negative returns of 4 percent and 5.18 percent, respectively, in the same time frame. However, the report added that hybrid funds haven’t fallen as much, with returns of negative 1-3 percent.
There are several categories of hybrid funds ranging from aggressive to conservative, depending on investor risk appetite. The data from Value Research shows that conservative hybrid funds are down nearly 1.5 percent whereas equity savings funds are down 1.9 percent, BS further informed.
Conservative hybrid funds invest 75-90 percent in debt and the rest in equities. Equity savings funds can invest in a mix of equity arbitrage and debt. Balanced hybrid funds invest 40-60 percent of total assets in equity and debt.
Edelweiss MF in its note on Edelweiss BAF stated that “The ongoing crude and commodities shock in the wake of the Russia-Ukraine conflict has led to negative implications on global growth after Covid. This has accentuated an already highly volatile market led by hawkish commentary and inflation concerns. Therefore, a dynamic asset allocation fund will deliver better risk-adjusted returns in such a market scenario,” added the report.
