Ten best hybrid funds for investment

The euphoria is back on Dalal Street after the benchmark BSE Sensex crossed the 80,000 mark for the first time and price-to-earnings multiples of many stocks in the mid and small-cap space closed in on three digits. 

The valuations in the broader market are not cheap either with the benchmark BSE Sensex trading at 24.5 times its trailing earnings, close to the highest level in the post-pandemic period and one of the highest in the world.

This makes many investors cautious if not nervous considering that this exuberance has come when corporate earnings are slowing down and consumer demand remains weak. According to a report published in Business Standard earlier this week, the combined revenues and profits of Nifty 50 companies in the April-June 2024 quarter are likely to be nearly flat on a year-on-year basis.

This raises the risk of a sharp correction in stock price especially in sectors that have been driving the markets. Given this, equity investors are advised to hedge their portfolio by investing a part of their fund in non-equity assets such as fixed income, bonds, money market or even gold and silver. 

One way to do this seamlessly is to invest in hybrid funds investing in various other assets besides equity.

The exact share of non-equity assets in their portfolio depends on the mandate and classification of the fund. According to SEBI classification, there are nine categories of hybrid funds - aggressive hybrid, conservative hybrid, balanced hybrid, arbitrage fund, capital protection funds, dynamic asset allocation or balanced advantage fund, equity saving and multi-asset allocation fund.

Also Read: Investment tips as Sensex tops 80,000

The best option for investors right now is to invest in hybrid funds that have generated maximum returns with minimum exposure to equity assets. Here are the 10 best hybrid funds that have generated consistently high returns in the last five years without “over-investing” in equities.

1. At the top of our list is HDFC Balanced Advantage Fund, the category leader and one of the biggest schemes in the country with assets under management (AUM) of nearly Rs 90,000 crore currently. It has been one of the top-performing funds with 41.1 percent returns in the last one-year and 5-year compounded annual returns (CAGR) of 20 percent. The fund has out-performed despite equity being 51 percent of its portfolio - among the lowest in its peer group.

2. Bank of India Mid & Small Cap Equity and Debt Fund is next with 52 percent returns in the last one year and 5-year CAGR returns of 27 percent. Investment in equity accounts for 79.4 percent of the fund’s total AUM of Rs 755 crore currently.

3. JM Aggressive Hybrid Fund is the third best-performing fund in our list with 56.5 percent returns in one-year and 5-year CAGR returns of 24.7 percent. Equities account for 76.3 percent of its total AUM of Rs 384 crore currently.

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4. Quant Multi-Asset Fund is next on our list with a 46.6 percent return in one-year and 5-year CAGR returns of 29 percent. Equities account for only 50 percent of its total AUM of Rs 2542 crore currently.

5. Quant Absolute Fund is the fifth best-performing fund in our list with 38 percent returns in one-year and 5-year CAGR returns of 25.5 percent. Investment in equity assets accounts for 77.2 percent of its total AUM of Rs 2216 crore, which makes it riskier than its other sibling in our list.

6. UTI Aggressive Hybrid Fund is next on our list with one-year returns of 38 percent and 5-year CAGR returns of 18.4 percent. As the name suggests it’s an equity-oriented fund with 70.7 percent of its current AUM of Rs 5852 crore invested in equities.

7. Kotak Equity Hybrid Fund is the 7th best-performing fund in our list with one-year returns of 34 percent and 5-year CAGR returns of 19 percent. Equities account for 74 percent of its total AUM of Rs 384 crore currently.

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8. ICICI Prudential Multi-Asset Fund is next on our list with one-year returns of 33 percent and 5-year CAGR returns of 20.8 percent. It’s a multi-asset fund with equities accounting for 59.3 percent of its current AUM of around Rs 44,000 crore.

9. UTI Multi-Asset Allocation Fund comes next with a 37.2 percent return in one-year and 5-year CAGR returns of 16 percent. It’s one of the least risky funds with equities only accounting for 47.4 percent of its total AUM of Rs 2418 crore currently.

10. ICICI Prudential Equity and Debt Fund is the last fund on our list with 39.3 percent returns in the last one-year and 5-year CAGR returns of 22 percent. Despite its name, it’s an equity-oriented scheme with Investment in equities accounting for 70 percent of its total AUM of around 37,000 crore currently.

Happy Investing!

(Disclaimer: This article is for information purposes only. Readers are advised to consult a certified financial advisor before making an investment in any of the funds or securities mentioned above.)

(Karan Deo Sharma is a Mumbai-based finance and equity markets specialist).

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