Returns and stability are on the checklist of most investors while selecting a mutual fund. The idea behind hybrid investing is to bring together two different asset classes, each with a distinct role to play. Achieving a balance of risk and returns has become an integral part for investors looking to benefit from capital appreciation while limiting their drawdowns.
However, knowing where to deploy your funds can be a challenge. That's where hybrid passive funds like Motilal Oswal Nifty Midcap150 Plus 8-13 Yr G-Sec 70:30 Index Fund come into the picture.
What is a Hybrid Passive Fund?
A passive mutual fund is a type of mutual fund that aims to replicate the returns of an underlying index or asset class. By investing in the components of the index in the same proportion, a passive fund strives to mirror the performance of the index that it is tracking rather than outperforming the market.
Unlike tracking an index consisting solely of equity or debt instruments, a hybrid passive fund tracks an index consisting of both asset classes. A hybrid index may consist of equities and fixed-income instruments such as government securities (G-Sec) or corporate bonds.
Motilal Oswal Nifty Midcap150 Plus 8-13 Yr G-Sec 70:30 Index Fund
Motilal Oswal Nifty Midcap150 Plus 8-13 Yr G-sec 70:30 Index Fund is a passively managed hybrid fund that tracks the Nifty Midcap150 Plus 8-13 Yr G-Sec 70:30 Index. As the name suggests, the index tracks the Nifty Midcap150 index along with the 8-13 Yr G-Sec index. The index has a 70% exposure to mid-cap equities and 30% exposure to government securities.
How the Hybrid Approach Offers Returns and Stability?
Equity is often seen as the go-to option for generating higher returns and wealth creation. However, equities are more volatile and carry a higher risk of losses and capital erosion. On the other hand, debt instruments offer lower returns but also carry lower risk and volatility.
The Nifty Midcap150 Plus 8-13 Yr G-Sec 70:30 Index offers exposure to mid-cap companies in their growth phase, that have the potential to generate higher returns while exposure to low-risk government securities help reduce volatility and bring about stability by acting as a cushion during unfavourable market conditions.
While the Nifty Midcap 150 index has offered upto 6% higher annualized returns than the Nifty 50 index, it has also been more volatile. Meanwhile, the G-Sec index has been nearly 73% less volatile than the Nifty 50 index, at the cost of lower returns.
How Has The Hybrid Index Performed?
The Nifty Midcap150 Plus 8-13 Yr G-sec 70:30 Index has consistently outperformed the Nifty 50 index. The hybrid index generated 3-years annualized returns of 11.9% while the Nifty 50 index generated returns of 6.1%. The hybrid index has also outperformed the Nifty 50 index over 1,5,10, and 15 year horizons as well.
The exposure to government securities has also prevented the index from seeing large drawdowns during volatile market conditions. The hybrid index has seen lower volatility and smaller declines during market corrections, sell-offs, or crashes. Over a period of 5 years, the hybrid index has witnessed an annualized volatility of 11.9% while the Nifty 50 index was more volatile at 13.8%.
The Funds' Approach
While a large chunk of hybrid funds offer exposure to large caps and corporate debt, Motilal Oswal Nifty Midcap150 Plus 8-13 Yr G-Sec 70:30 Index Fund offers investors exposure to midcap companies and government securities. Through tracking the index, the fund aims to capture higher returns from midcaps during growth phases, and reduce risk through government securities during slowdowns and contractions.
The distinct hybrid approach of the underlying index and the passive nature of the fund is useful for investors looking to generate returns while keeping risk in check. Additionally, investors don't have to worry about reallocating funds to different asset classes, timing, or predicting the market.
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