How do I pick a reliable hybrid fund for the long term, as I find it quite difficult, given there are so many funds?
- Ayush Maniar
You can start by looking at our ratings. Although this is not a conclusive thing, four- and five-star-rated funds can be a good starting point. The ratings can help in narrowing the universe of funds. Beyond that, look for the funds that have been able to deliver superior returns over a full market cycle, i.e. about four and a half years.
Secondly, look at the fund manager and the tenure for which he/she has been managing the fund. Check whether or not the fund manager who was managing the fund earlier is still there.
At Value Research, while selecting a hybrid fund, our analysts look at the range of asset allocation. There are about three-four types of hybrid funds, but here I am referring to aggressive hybrids and equity savings funds. Equity savings funds invest about one-third of their assets in equity, while the aggressive ones have two-thirds of their portfolio invested in equity. Our analysts compare the communication on the asset allocation with what it actually is. For instance, if, for an aggressive hybrid fund, the fund document states that the asset allocation of the fund will be 65-75 in equity, our analysts check how actively the fund manager rebalances the fund. Even if the fund has not been the best performer in the category but it has been more disciplined on its asset allocation, we would actually go with it because that is more predictable. The brilliance of a fund manager can have cyclicality but the discipline of a fund manager is something which is very bankable and that itself is a huge reward.
So, we go by these three parameters-performance over a full market cycle, the asset allocation discipline and the fund manager still being there.