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The Mutual Fund Show: The Pros And Cons Of Conservative Hybrid Funds


George H Joseph: We saw that the category average expense ratio is very high, so we have kept the expense ratio very low: – 1% is the expense ratio. This is at the time of NFO and post-NFO, we are inkling towards reducing the expense ratio to 16 pips (percentage in points). It will be a clear winner from the expense ratio point of view within the category.

Secondly, the maturity profile of many debt instruments within the category has been very high. We want to bring liquidity in the portfolio, so that investors should be comfortable putting in money at any point in time. And if you want to pull out, you should be able to do it.

On the debt side, we will have a dynamic debt allocation mix and the modified duration will be less than five years.

If you look at the portfolio, 70-80% will be in G-Sec (government securities) of different maturities, and 20% will be in PSU bonds, which is AAA bonds. The quality of the portfolio will be very high.

Now, coming to the sovereign rating, there is no liquidity risk. You can sell on any day without any impact costs. That’s how we are running our dynamic bond portfolio. We are more or less mimicking the dynamic bond portfolio.

On the equity side, 10-25% is the leeway which SEBI provides in this category. Instead of going for arbitrage opportunities – which is another way to run a regular savings product – because arbitrage rates can crash to less than 3% or below rates, we are moving to the equity level to 10-25%. We are running the dynamic bond – the balance advantage one for ITI Mutual Fund, in a similar fashion.

A dynamic asset allocation product like the balanced advantage fund is doing reasonably well. In a similar way, we will be moving 10-25% equity allocation in this conservative hybrid fund as well depending upon the asset allocation needs we will have.

We are going to invest only in Nifty 50 stocks or probably in the index itself, so that you’re mimicking the passive strategy in terms of stock selection. Active dynamic asset allocation is between 10-25% on the equity side. For debt, we will be following an active strategy keeping in mind the liquidity profile.


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