As we approach the final phases of the general elections, the markets are experiencing increased volatility as anxiety grows over the potential outcome and the continuity of the verdict. This uncertainty, coupled with the high valuations in many segments following a year-long rally, is likely to result in continued market fluctuations.
During times like these, when asset allocation becomes a focal point in investor portfolios, hybrid funds emerge as a suitable option for those looking to generate stable returns with reduced risk levels. Among the hybrid funds, equity savings funds stand out as especially well-suited for volatile market conditions.
Equity savings funds are hybrid schemes that invest in a mix of equity, bonds, and derivatives. With equity investments, including derivatives, constituting at least 65 percent of the portfolio, these funds benefit from equity taxation.
In this context, the HDFC Equity Savings Fund (formerly known as HDFC Multiple Yield) is a resilient scheme within the category, consistently delivering strong performances over the years. With above-average, double-digit returns over medium and long terms, this fund serves as a valuable diversification tool for conservative investors, particularly in the current market environment. Investors with a 3-5 year horizon can consider deploying lump-sum investments, while others may opt for systematic investment plans (SIPs) in the fund.
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Durable performance
The HDFC Equity Savings Fund has consistently outperformed its peers in the category, delivering double-digit returns across various timeframes—short, medium, and long term. In the past one and three-year periods, the fund has yielded returns of 18.4 percent and 12.5 percent, respectively.
When analyzing three-year rolling returns from May 2014 to May 2024 (a 10-year period), the HDFC Equity Savings Fund has maintained an average return of 10.6 percent, positioning it among the best performers in its category.
The fund has recorded returns exceeding 10 percent in nearly 70 percent of instances, over the mentioned period. Additionally, it has delivered returns exceeding 8 percent in nearly 84 percent of cases and over 12 percent in over 32 percent of instances, highlighting its consistency in performance.
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Considering SIP returns (XIRR) over the past decade, the fund has delivered a return of 13.5 percent, underlining its sustained performance over the years. It has consistently outperformed the Nifty Equity Savings Index TRI across different timeframes.
Dexterity in portfolio moves
The HDFC Equity Savings Fund strategically allocates its investments across stocks, bonds, and derivatives to optimize risk-adjusted returns in the long run. With the equity portion typically maintained at 65 percent or higher, the fund also engages in derivative positions, with hedged positions in equity and related instruments currently at 33.32 percent.
The fund primarily selects stocks from the Nifty 100 basket, with minimal exposure to mid and small caps, resulting in a moderate risk equity portfolio. Key sector holdings include banks, automobiles, and pharmaceuticals.
In the fixed-income segment, the fund holds government bonds with maturity periods of 5-10 years, positioning it to benefit from potential capital appreciation if long-term yields decline. Additionally, the corporate bond holdings consist mainly of AAA-rated securities, with a small portion invested in AA-rated instruments from reputable firms. The fund also maintains a low credit risk profile, having divested from additional tier 1 (AT1) bonds in the past.
For investors with a conservative risk appetite, the HDFC Equity Savings Fund can serve as a valuable diversification tool within their portfolio. A lump-sum investment with a 5-year horizon or SIPs with a similar or longer term outlook can prove rewarding, given the fund’s equity taxation benefits and healthy risk-adjusted returns over the long term.