HDFC Hybrid Debt Fund: Delivering returns with an enhanced credit profile

HDFC Hybrid Debt Fund, launched in December 2003, has consistently ranked in the top 30th percentile of the conservative hybrid funds category in the CRISIL Mutual Fund Ranking (CMFR) for three consecutive quarters, from July to September 2023.

The fund’s month-end assets under management increased to Rs 2,893 crore in September 2023, up from Rs 2,331 crore in September 2020.

Shobhit Mehrotra and Srinivasan Ramamurthy have been managing this fund since September 2007 and December 2021, respectively.

The fund’s objective is to generate income and capital appreciation by primarily investing in debt securities, money market instruments, and maintaining moderate exposure to equities.

Trailing returns

The fund has outperformed the benchmark (Nifty 50 Hybrid Composite Debt 15:85 Index) in the past six-month, one-, two-, three-, five-, and 10-year trailing periods, as well as its peers (funds ranked under the conservative hybrid category in September 2023 CMFR) during the past six-month, one-, two-, three-, five-, seven-, and 10-year trailing periods.

To put this into perspective, Rs 10,000 invested in the fund at inception would have grown to Rs 68,301 on November 2, 2023, at an annualised rate of 10.15 per cent. In contrast, the same investment in the category and benchmark would have grown to Rs 48,904 (8.32 per cent) and Rs 48,118 (8.23 per cent), respectively.

A systematic investment plan is a disciplined mode of investing offered by mutual funds through which one can invest a certain amount at regular intervals. A monthly investment of Rs 10,000 for the past 10 years in the fund, totalling Rs 12 lakh, would have grown to Rs 18.82 lakh (or 8.84 per cent annualised return), compared with Rs 18.19 lakh (8.2 per cent) in the benchmark as of November 2, 2023.

Portfolio analysis

The fund has predominantly allocated its portfolio to non-convertible debentures (NCDs)/bonds (50.89 per cent versus peers’ 29.3 per cent), followed by stocks (23.06 per cent, in line with the peer average of 22.45 per cent) and government securities, or G-secs (19.36 per cent versus peers’ 36.01 per cent).

The three-year fund’s average allocation to NCDs/bonds, stocks, and G-secs was 55.76 per cent, 23.41 per cent, and 12.54 per cent, respectively.

The fund has notably reduced its exposure to papers rated below ‘AAA’, currently standing at 7.38 per cent, down from 12.27 per cent in the past 12 months and a significant improvement from 34 per cent over the past 36 months, enhancing the credit quality.

On a three-year daily rolling basis, the fund boasts the second-highest Sharpe ratio within its category, with a ratio of 1.56, in stark contrast to the peer average of 0.53. Furthermore, the standard deviation of returns for the fund is lower than the peer average (3.6 per cent versus peers’ 3.69 per cent).

The fund maintains a diversified equity portfolio comprising 58 stocks, surpassing the peer average of 46 stocks.

The average maturity of the debt portfolio stands at 6.17 years versus the peer average of 4.87 years, while the modified duration stands at 3.67 years versus the peer average of three years.

CRISIL Research