HDFC Hybrid Equity Fund

In this piece, we will cover all aspects of the HDFC Hybrid Equity fund and analyze its potential growth and risks.

What is HDFC Hybrid Equity Fund?

A hybrid equity fund is a balanced fund that leans towards equity investments and usually has more than 65% of the fund allocation towards equity-based instruments. 

HDFC Hybrid Equity Fund is an open-ended hybrid equity fund that was launched in September 2000. Over the past 21 years, the fund has raised an AUM (Assets Under Management) of more than Rs 18,908 crores.

Within its category, it is a sizable amount that grows investors’ confidence. If you are a new investor considering this fund for a lump-sum investment or SIP, a significant AUM can be a promising indicator.

The core investment objective of HDFC Hybrid Equity Fund is to generate income and capital appreciation by building a portfolio of equity and equity-related instruments. The scheme also invests in debt and money market instruments to maintain a strong foundation and earn stability. However, the percentage of debt allocations remains significantly lower than allocations towards equity.

How Are Allocations Made in This Fund?

The underlying investment objective guides the fund allocation and asset management strategy for HDFC Hybrid Equity Fund. Between 65%-80% of the portfolio is invested in equity-related instruments that include large, medium, and small-cap companies. 

These companies are selected for investment if they have:

• Reasonable growth prospects and upward trends
• Sound financial strength and proven returns over the past few years
• Sustainable business models that are reasonably resilient to market disruptions
• Acceptable valuations that indicate a positive potential for capital appreciation in the long-term

The remaining 35%-20% of the fund is allocated to debt securities that are selected based on the following parameters:

• High credit quality
• Liquidity potential
• Interest rates
• Future performance outlook

A higher equity allocation is why this fund can generate good returns, but it also increases the risk involved for investors. During bull market or corrections, this fund is likely to behave in a volatile manner. As an investor, you must be prepared to face such movements before going all in.

Different Plans and Options

HDFC Hybrid Equity Fund has two plans for investors to choose from. These are:

• Regular Plan: You can invest via a broker or agent within the HDFC Hybrid Equity Fund standard
• Direct Plan: With the Direct plan, you don’t have to bear brokerage charges for every transaction, and you can directly invest in the fund.

Under these two plans, an investor can opt for either the Growth option or the IDCW option.

• HDFC Hybrid Equity Fund Growth Option: All profits earned by the fund are reinvested in the fund. It increases the value of the total investment and gives an added benefit of compounding to individual investors. If you want to invest in this fund for a long-term horizon and want to grow your wealth, this plan is more suitable.
• HDFC Hybrid Equity Fund IDCW Option: IDCW stands for Income Distribution cum Capital Withdrawal. Under the IDCW plan, investors can generate regular income as any funds' profits are distributed to investors through dividends and bonuses.

Since the gains are not reinvested in the scheme, the NAV of the IDCW plan is lower than the HDFC Hybrid Equity Fund Growth plan. If your objective behind investing in this equity fund is to generate regular dividend income, then the IDCW plan is better suited for you.

How to Invest in HDFC Hybrid Equity Fund?

To invest in HDFC Hybrid Equity Fund, you can choose either the lump-sum investment option or set up a Systematic Investment Plan (SIP) for daily, weekly, monthly, or quarterly contributions. For the initial lump sum investment, the minimum purchase amount is Rs 5000. Subsequent investments can be made in multiples of Rs 1000. 

For the SIP option, depending upon the frequency of the SIP, the minimum amount can vary. It can be categorized as:

• For Daily SIP: Rs 300 and multiples of Re. 1 thereafter
• For Weekly SIP: Rs 1000 and multiples of Re. 1 thereafter
• For Monthly SIP: Rs 500 and multiples of Re. 1 thereafter
• For Quarterly SIP: Rs 1500 and multiples of Re. 1 thereafter

Investors have to undergo a KYC process before their fund application gets accepted. Based on their preferred plan and option, fund units are allocated after the completion of KYC. While there is no upper limit of investment, for cash transactions in the lump-sum purchase, an upper limit of Rs 50,000 is applicable. 

Furthermore, a transaction charge of Rs 150 is applicable for first-time investors for transactions above Rs 10,000. For repeat users, this transaction charge is Rs 100 and incurs a one-time fee per scheme.

Eligibility Criteria for Investment

Following is the eligibility criteria for investment in the HDFC Hybrid Mutual Fund:

• All Indian residents above the age of 18 can apply for the HDFC Hybrid Equity Fund. Joint ownership is permissible for a maximum of three individuals.
• Minors are also allowed to apply but through a legal guardian. However, they cannot hold the fund units in joint ownership. 
• Any institution, company, trust, and council established in India can also invest in this fund.
• Non-Resident Indians (NRIs) and Foreign Portfolio Investors (FPIs) are also eligible to apply for this fund, per SEBI guidelines and applicable laws. The exception here is that NRIs and FPIs residing in the United States of America can only subscribe to this fund by making a physical application and selecting the lump-sum investment option. These investors are not eligible for setting up a SIP.
• Residents of Canada and NRIs based in countries that are declared non-compliant by the Financial Action Task Force (FATF) are NOT eligible to subscribe to any plan of HDFC Hybrid Equity Fund.

Key Facts to Know for Investment

The risk-return profile of the HDFC Hybrid Equity Fund is ‘Very High.’ It means that investors with a considerably high-risk appetite seeking higher returns over a long investment horizon can find it as a deserved inclusion in their investment portfolio. 

To further support your investment decision, here are some critical facts about HDFC Hybrid Equity Fund that you must know.

1. Entry and Exit Loads

   The AMC levies no entry load when you start investing in the HDFC Hybrid Equity Fund. However, at the time of exiting the fund, each transaction may attract some exit load. Up to a limit of 15% of the Units owned by an individual investor can be redeemed without any exit load from the date of allotment. 

   Beyond this limit, an exit load of 1.00% is applicable if the Units being redeemed or switched out are within one year from the date of allotment. After one year from the date of allotment, no exit load is payable on all Units.

2. Lock-in period

   Since this is an open-ended fund, there is no lock-in period applicable. Investors can enter and liquidate or redeem their Units at any given time.

3. Bonus and Dividend Reinvestment

   Any bonus units allocated or dividend reinvestment applicable in the HDFC Hybrid Equity Fund Growth plan is also exempt from any exit load at the time of redemption. It is irrespective of the date of allotment of Units.

4. Total Expense Ratio (TER)

   The Total Expense Ratio is the cost levied by the AMC for managing the fund. It is calculated based on total Assets Under Management (AUM) and is expressed per unit. This is the cost that individual investors have to bear upon each transaction and can reduce their invested amount. 

   The TER for the Regular plan of HDFC Hybrid Equity Fund is 1.77% (as of 30th September 2021) and for the Direct plan is 1.13%. There is no difference in TER calculation for Growth and IDCW options.

5. Benchmark for Fund

   The HDFC Hybrid Equity Fund is benchmarked against the Nifty 50 Hybrid Composite Debt 65:35 Index. Due to a higher risk-return profile, the fund is suggested for an investment horizon of 3 years or longer.

6. Rating and Ranking

   There are 49 such funds within its category, amongst which HDFC Hybrid Equity Fund holds a rank of 21 (as of 30th September 2021). It has a three-star rating, which indicates average performance within the category. 

7. Returns

   The returns of HDFC Hybrid Mutual Fund have been consistent. The fund promises five-year returns of nearly 12.89% and has given investors a net return of 15.98% since its launch.

In Conclusion

HDFC Hybrid Equity Fund is an aggressive investment scheme with the potential of delivering high returns through predominantly equity-linked investments. If the fund’s composition and allocation logic meet your investment objective, you can consider adding it to your portfolio. However, before investing in this scheme, it is wise to consult a financial advisor and determine what outcomes you want to achieve.