HSBC Equity Hybrid Fund; A Worthy Investment Proposition? - Outside View by PersonalFN

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HSBC Equity Hybrid Fund; A Worthy Investment Proposition?
Oct 12, 2018

A hybrid fund that ensures growth and stability of returns in the long run.

HSBC Equity Hybrid Fund (HEHF), an open-ended scheme is a new addition to the stable of HSBC Mutual Fund that will invest a dominant portion of its assets in equity & equity related securities and the remaining in debt & money market instruments in the endeavour to accomplish the set-out investment objective.

The equity investments would not be restricted to any one of the market capitalisation segments. So, in that sense, HEHF has the flexibility.

Graph 1: Risk-Return Positioning of HEHF

Since the asset allocation of HEHF is largely bent towards equities, from a risk-return standpoint it is a high risk-high return investment proposition, even as the focus would be to hold a diversified portfolio of robust companies, reflecting most attractive investment ideas, at all points of time.

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Thus, HSBC Equity Hybrid Fund is suited for investors with a high-risk appetite, who have an investment time horizon of at least 5 years, and whose investment objective is capital appreciation over the long run.

Table 1: NFO Details

NFO Details of HSBC Equity Hybrid Fund
Type An open-ended hybrid scheme investing predominantly in equity and equity related instruments Category Aggressive Hybrid Fund
Investment Objective To seek long-term capital growth and income through investments in equity and equity-related securities and fixed income instruments.

However, there is no assurance that the investment objective of the Scheme will be achieved.
Min. Investment Rs 5,000 and in multiples of Re 1 thereafter Face Value Rs 10 per unit
  • Regular
  • Direct

  • Growth
  • Dividend
  • *Default option

Entry Load Nil Exit Load
  • Any redemption / switch-out of units within 1 year from the date of allotment shall be subject to exit load as under:
    1. For 10% of the units redeemed / switched-out: Nil
    2. For remaining units redeemed or switched-out: 1.00%
  • No Exit Load will be charged if Units are redeemed / switched-out after 1 year from the date of allotment.

Fund Manager Neelotpal Sahai and Sanjay Shah Benchmark Index A customized index having 70% weight to S&P BSE 200 and 30% weight to CRISIL Composite Bond Fund Index
Issue Opens 28th September 2018 Issue Closes: 12th October 2018
(Source: Scheme Information Document)

How will the scheme allocate its assets?

Under normal circumstances, it is anticipated that the asset allocation of HEHF will be as follows:

Table 2: HEHF's Asset Allocation

Instruments Indicative allocations
(% of total assets)
Risk Profile High/Medium/Low
Minimum Maximum
Equities & Equity related securities 65% 80% High
Debt instruments & Money Market instruments (including Cash & Cash equivalents) 20% 35% Low to Medium
Units issued by REITs and InvITs 0% 10% Medium to High
(Source: Scheme Information Document)

Further, it is stated in the offer document that:

  • If the Scheme decides to invest in securitised debt, it is the intention of the Investment Manager that such investments will not normally exceed 30% of the corpus of the Scheme.
  • If the Scheme decides to invest in ADRs / GDRs issued by Indian Companies and foreign securities in line with SEBI stipulation, it is the intention of the Investment Manager that such investments will not, normally exceed 30% of the assets of the Scheme.
  • The Scheme shall have derivative exposure as per the SEBI regulations issued from time to time. However, derivative exposure shall not exceed 50% of the net assets of the Scheme.
  • And the Scheme any other instruments as may be permitted by RBI / SEBI / such other Regulatory Authorities from time to time.

What will be the Investment Strategy?

The aim of the HSBC Equity Hybrid Fund is to strike a balance between long-term growth and stability from an actively managed portfolio of equity and equity-related securities and fixed income instruments. The Scheme will try to achieve this by maintaining the aforementioned asset allocation.

HEHF may invest in unlisted and/or privately placed and/or unrated debt securities subject to the limits prescribed in its Scheme Information Document.

To construct the equity portfolio, HEHF will follow a combination of top-down and bottom-up approach. Investments will be pursued in select sectors based on the Investment Team's analysis of business cycles, regulatory reforms, competitive advantage etc.

  • The fund manager in selecting stocks will focus on:
  • The fundamentals of the business;
  • The industry structure;
  • The quality of management;
  • Sensitivity to economic factors;
  • The financial strength of the company; and
  • The key earnings drivers

Graph 2: How will HEEF construct the portfolio

HEHF will not follow any particular market capitalisation bias. It will adopt a flexi-cap strategy to build a diversified portfolio using PBROE valuation framework.

For investments in debt & money market instruments, HEHF may invest a part of the portfolio in various debt securities issued by corporates and/or state and central government. Such government securities may include securities which are supported by the ability to borrow from the treasury or supported only by the sovereign guarantee or of the state government or supported by GOI/State government in some other way.

With the aim of controlling risks, rigorous in-depth credit evaluation of the instruments proposed to be invested in will be carried out by the Investment Team of the AMC. The credit evaluation includes:

  • A study of the operating environment of the company;
  • The past track record as well as the future prospects of the issuer;
  • The short as well as the long-term financial health of the issuer

The investment in debt securities will also be guided by ratings of rating agencies such as CRISIL, CARE and ICRA or any other rating agency as approved by the regulators.

In addition, the Investment Team will study the macroeconomic conditions, including the political, economic environment and factors affecting liquidity and interest rates. The AMC would use this analysis to attempt to predict the likely direction of interest rates and position the portfolio appropriately to take advantage of the same.

Since investing requires disciplined risk management, the AMC would incorporate adequate safeguards for controlling risks in the portfolio construction process.

Who will manage HEHF?

The HSBC Equity Hybrid Fund will be managed by Mr Neelotpal Sahai and Mr Sanjay Shah.

Mr Neelotpal Sahai is the Senior Vice President & Fund Manager of Equities at HSBC Asset Management (India) Private Limited. He is associated with HSBC Asset Management from April 2013.

He holds a B. Tech degree from IIT Varanasi and PGDM from IIM Kolkata. He has a work experience of over 24 years in Research and Fund management. He worked as an Equity Analyst for 2 years with UTI Securities Ltd, then joined SBC Warburg as an Analyst for a period of one year. Further, he joined Vickers Ballas Securities Ltd for a year as an Analyst to later join Infosys Ltd as a Senior Project Manager for 6 years. Thereafter, joined Motilal Oswal Securities Ltd as a Senior Research Analyst for a year, followed by an opportunity to work as a Director in IDFC Asset Management Company Ltd for 7 years before joining HSBC Asset Management.

Some of the other Equity schemes he manages are HSBC Large Cap Equity Fund, HSBC Multi-Cap Equity Fund, HSBC Small Cap Equity Fund and HSBC Dynamic Asset Allocation Fund along with Mr Shah.

Mr Sanjay Shah is a Senior President & Head of Fixed Income at HSBC Asset Management (India) Private Limited for 8 years now.

He holds a Bachelor's degree in commerce (B. Com), is Chartered Accountant, and has to his credit a PGDM from IIM Ahmedabad.

Mr Shah has over 19 years of work experience in research and risk. He joined SBI Funds Management Private Limited as a Chief Manager to handle Debt Funds for 4 years. Later he joined in as a Manager - Credit Risk in ICICI Bank Limited for a year. He was associated with Rabo India Finance Private Limited for two years as Senior Manager- Credit Risk, and after that, he worked in Lehman Brothers Structured Financial Services Private Limited as Vice President, Convertible Products for two years. For a brief time, he worked as Credit Analyst in FIL Fund Management Private Limited before he joined HSBC Asset Management (India) Vice President & Fund Manager, Fixed Income.

Currently, the other schemes he manages are HSBC Managed Solution, HSBC Regular Savings Fund, HSBC Debt Fund, HSBC Short Duration Fund, HSBC Flexi Debt Fund and HSBC Dynamic Asset Allocation Fund along with Mr Sahai.

Table 3: Performance of schemes managed by Mr Sahai and Mr Shah

a. Schemes managed by Mr Sahai, since the time he took over

Scheme Name SI Benchmark Name Managing Since Scheme Return Benchmark Return
HSBC Large Cap Equity Fund(G) NIFTY 50 - TRI May-13 12.19 12.38
HSBC Dynamic Asset Allocation Fund(G) S&P BSE 200 - TRI May-13 10.71 13.68
HSBC Multi Cap Equity Fund(G) S&P BSE 200 - TRI May-13 15.67 13.68
HSBC Small Cap Equity Fund(G) S&P BSE 250 Small Cap - TRI Jun-18 -14.70 -12.80
(Source: ACE MF-PersonalFN Research)

b. Schemes managed by Mr Shah, since the time he took over

Scheme Name SI Benchmark Name Managing Since Scheme Return Benchmark Return
HSBC Flexi Debt Fund(G) Crisil Composite Bond Fund Index Dec-16 1.70


HSBC Debt Fund(G) Crisil Composite Bond Fund Index Jan-09 6.43 7.25
HSBC Regular Savings Fund(G) CRISIL Hybrid 85+15 - Conservative Index Jun-09 8.16 N.A.
HSBC Short Duration Fund(G) Crisil Short Term Bond Fund Index Jan-09 7.29 7.67
(Source: ACE MF-PersonalFN Research)

As can be seen, most of the schemes managed by both these fund managers have been underperforming their respective benchmark index. Their management style can at best be termed as modest and does not give much confidence to investors.

Fund's outlook of HSCB Equity Hybrid Fund

As mentioned earlier, the aim of the HSBC Equity Hybrid fund is to tap the dual potential of equity and debt for over a longer horizon.

Following a flexi-cap strategy while building its equity portfolio with the top-down and bottom-up approach is an advantage. In the current market conditions where small-cap and mid-cap companies are hammered, and so have large caps tumbled; it provides an opportunity to do some value buying to the fund managers. However, amidst the extreme turbulence constructing the portfolio would not be easy and may inflict very-high-risk.

The investment by fund managers in debt & money market securities is to position the portfolio in the favourable short-mid-long bonds to avoid extreme risk. The elevated yields as present provide good opportunities but focusing on credit quality would also be imperative to reduce risk to capital.

Amidst the macroeconomic uncertainties looming, the fortune of the fund would closely be linked to how the fund manager plays the investment strategy in the endeavour to accomplish the investment objective of HEHF.

[Read: Skip NFOs, Instead Consider Building A Strategic Mutual Fund Portfolio]

Editors' note:

At PersonalFN to handle the turbulence of the Indian equity market we have formulated the "core and satellite strategy" for mutual funds investors.

The 'Core and satellite' investing is a time-tested strategic way to structure and/or restructure your investment portfolio.

PersonalFN's research states that 60% of the portfolio should be reserved for Core mutual funds and the balance 40%, for the Satellite mutual funds.

Also, when there is a change in market outlook, revisiting the strategically structured portfolio by reviewing assigned weights to funds and the portfolio, is imperious

It would do good to follow this strategy and hold a strategic portfolio, particularly because the Indian equity market would remain volatile for quite some time now.

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Author: PersonalFN Content & Research Team

This article first appeared on PersonalFN here.

PersonalFN is a Mumbai based personal finance firm offering Financial Planning and Mutual Fund Research services.


The views mentioned above are of the author only. Data and charts, if used, in the article have been sourced from available information and have not been authenticated by any statutory authority. The author and Equitymaster do not claim it to be accurate nor accept any responsibility for the same. The views constitute only the opinions and do not constitute any guidelines or recommendation on any course of action to be followed by the reader. Please read the detailed Terms of Use of the web site.

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