Retail investors would be quite surprised with these numbers. Conservative debt funds such as HDFC Multiple Yield Fund, ICICI Prudential Child Care Plan and SBI Magnum Children's Benefit Plan have returned 20-27 per cent in the past year. In comparison, the Bombay Stock Exchange Sensitive Index, or Sensex, has returned 30 per cent.
Not a huge difference, if one takes into account that these funds come under the category of conservative debt funds and some of them are monthly income plans as well. Conservative debt funds are those in which the fund manager puts over 65 per cent of the investible funds in debt and rest in equity. Says Hemant Rustagi, CEO, WiseInvest: "We usually advise clients to have a more diversified portfolio of all tenures in the debt segment. If the yield falls, the price rise helps long-term funds to do better. On the contrary, if the yield rises, short-term schemes do well. In the past year, since the short-term funds were doing well and a little mix of equities would have made these funds perform so well. However, one needs to be quite selective about them.
Selection is an important criterion because as mentioned above, some of these schemes have done exceptionally well. But there are enough schemes who are suffering badly. According to data from Value Research, many schemes have returned 3-10 per cent.
The portfolios of these funds are quite interesting. For instance, SBI Magnum – the best performing fund in this category in the past year – has 86 per cent money in debt, 22.5 per cent in equity and rest in cash or cash equivalent. It has 11 kinds of bonds, most AAA and AA category with average maturity of 3.81 years and 20 stocks. Similarly, HDFC Multiple Yield fund has 79 per cent money in debt and over 18 per cent in equity and rest in cash and cash equivalent. It holds 12 bonds with average maturity of 0.4 years. It also has 24 stocks.
Market experts say these funds have done well, largely on the back of markets which has gone up substantially in the past year. Many of these schemes hold stocks in the mid-cap segment which has been the best performer in the past year. For example, S&P BSE small cap and mid-cap indices have returned 79 per cent and 55 per cent, respectively, in the past year. This would have given a lot of fillip to these segments. In addition, short-term debt schemes have returned eight to nine per cent. This would have helped improve returns.
According to investment advisors, long-term investors should invest in such schemes because an investor can clearly see gains and losses in a portfolio divided into debt and equity. On the other hand, in a scheme like this the loss/gain is not very clear because the fund manager can rebalance the portfolio according to market conditions. "If an investor is willing to live with some volatility and certain periods of underperformance, such schemes are quite good for investors with a long-term horizon," adds Rustagi. However, remember that unlike equity funds, these funds are treated as debt funds and the long-term tax rate is 10 per cent with indexation and 20 per cent without indexation. There will also be an expense ratio of 1.5-2.5 per cent as per the scheme and an exit load as well.