ITI Mutual Fund has been on a spree of launching new schemes to fill their product basket across different categories. The fund house has launched six schemes over the last one year. It has now come up with the seventh, a conservative hybrid fund.
The new fund offer (NFO) of ITI Conservative Hybrid Fund is open for subscription until March 07, 2022 and being an open-end fund, the scheme would re-open for subscriptions on March 21, 2022.
About the strategy
Since the scheme is categorised as a conservative hybrid fund, it is mandated to allocate between 75 to 90 per cent in fixed-income and the rest in equities. As per the presentation of ITI Conservative Hybrid Fund, it would be investing 75 per cent in fixed-income during the 'Bull' phase of the market, 82.5 per cent when the market is in a moderate state and 90 per cent when they are in a 'Bear' phase.
While the fund would be following a passive investment strategy tracking the Nifty 50 index for its equity allocation, it would be actively managing the fixed-income space. The fund would be investing in high-quality debt instruments such as sovereign bonds, AAA-rated bonds, A1+ rated bonds and so on.
Conservative hybrid funds make up a suitable investment for a conservative investor who cannot withstand too much volatility in the value of their investments and are content with moderate returns which are slightly higher than returns from fixed income options. They are apt for anyone seeking a regular income from their accumulation. The debt portion of these funds provides a moderate, but steady stream of income. And the small equity allocation though adds a bit of volatility, helps boost returns to keep up with the rate of inflation over the long term.
Also, it is advisable to invest in these funds with a horizon of at least three years. Conservative hybrid funds are taxed as non-equity funds which makes them eligible for the indexation benefit on redeeming the money after three years. Indexation helps adjust the cost of purchase for inflation thereby reducing the tax liability on the gains.
Though ITI Mutual Fund has just launched this fund, the category isn't new and has been there for long. There are 37 open-end funds in the conservative hybrid category managing over Rs 22,300 crore worth of investors' money. One important aspect to be conscious of while choosing a fund within this category is the expense ratio and it would be interesting to see how the ITI Conservative Hybrid Fund places itself on this front. The expense ratio of the direct plans in the category currently varies between a wide range of 0.18 to 1.73 per cent.
The average equity allocation of the funds in the category has remained at around 21 per cent over the last five years. And the average of category's return over any three-year period has been 8.18 per cent, over the last five years.
About the fund manager
ITI Conservative Hybrid Fund would be jointly managed by Vikrant Mehta and Pradeep Gokhale. Mr Mehta would be looking at the fixed-income side of the fund and is a Chartered Financial Analyst (CFA) by education. Prior to joining ITI, he has worked with multiple organisations including Kotak Mahindra AMC, Indiabulls AMC and JM Morgan Stanley Fixed Income Securities Pvt Ltd.
Mr Gokhale would be managing the equity side of the fund. He holds an extensive experience of over 23 years in fund management and equity research. Gokhale is a Chartered Accountant (CA) and a Chartered Financial Analyst (CFA) by education.
While both the fund managers also look at the fund house's other schemes in the fixed-income and equity categories, not much can be said on their performance due to lack of sufficient historical data.
About the AMC
ITI Mutual Fund is backed by the Investment Trust of India (ITI) group and is relatively new in the mutual fund industry. The oldest fund in their product basket was launched in the year 2019. The fund house currently has 16 mutual fund schemes in their product bouquet collectively managing more than Rs 2,700 crore worth of investors' money.
Out of these three are hybrids. The conservative hybrid fund is being launched now and the other two are ITI Arbitrage and ITI Balanced Advantage which were launched in 2019. Both these funds collectively manage Rs 578 crore. Their basket of debt funds comprises five schemes with total assets under management (AUM) of Rs 247 crore. And on the equity side, they have eight schemes managing Rs 1,878 crore worth of investors' money.
Also read: Three questions you should ask before investing in an NFO
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