Parag Parikh Conservative Hybrid NFO: A tax-efficient alternative to fixed income

This is an open-ended hybrid scheme investing predominantly in debt instruments and offers the scope to earn income along with the prospect of growth when held for a reasonably long period.

Staff Writer   /   May 5, 2021

PPFAS Mutual Fund has announced the launch of Parag Parikh Conservative Hybrid Fund. The scheme aims to generate regular income through investments predominantly in debt and money market instruments. It also seeks to generate income and capital appreciation by investing a certain portion in equity, equity-related instruments, and Real Estate Investment Trusts / Infrastructure Investment Trusts (REITs/InvITs). Read on to know more details.

About the NFO

Parag Parikh Conservative Hybrid NFO opens May 7, 2021 and closes May 21, 2021.  

The minimum investment shall be Rs 5,000 and in multiples of Re 1 thereafter. The scheme will reopen on May 28, 2021 for normal investments at prevailing NAV.

The performance of the scheme will be benchmarked against CRISIL Hybrid 85+15 – Conservative Index TRI. Rajeev Thakkar, Raunak Onkar and Raj Mehta will manage the scheme.

Both Direct and Regular Plans will offer Growth and Income Distribution cum Capital Withdrawal Options.

Important notes

Parag Parikh Conservative Hybrid Fund is an attempt by the fund-house to emulate Parag Parikh Flexi Cap Fund on the debt side.

Parag Parikh Conservative Hybrid aims to be flexible and would try to take advantage of debt opportunities.

The fund’s asset allocation is 75-90% in debt securities (including securitized debt) & money market instruments, 10-25% in equities & equity related instruments and 0-10% in units issued by REITs and InvITs.

For an investor, the fund will cost 0.60% per annum in regular plan route and 0.30% in direct plan route.

How hybrid, how conservative

The fund is ‘conservative’ in the sense that most of the corpus is invested in a mix of accrual and duration instruments without taking on excessive credit or interest rate risk.

The fund is ‘hybrid’ owing to the inclusion of two asset classes within one scheme.

Investment strategy

Debt/fixed income – The fund has a relatively wide mandate permitting it to include both, ‘accrual’ and ‘duration’ related instruments in portfolio. These include Sovereign, State Government, PSU and corporate securities across all maturities.

Equity – The fund will prefer stocks with strong cash flows (higher dividend payout/buybacks) Focus on choosing stocks possessing a ‘margin-of-safety’. It will aim to avail of ‘special situations’ whenever they arise.

REITs & InvITs – The fund wants to use these assets to fight inflation via annual rental increments.

Fund-house speak

Neil Parag Parikh, Chairman and CEO, PPFAS Mutual Fund said, “The idea is to have a flexible model where we have the freedom to take advantage of market opportunities without being too constrained.  Thus, the scheme will not be boxed into any particular type of debt like short term, government bond or high yield.  Parag Parikh Conservative Hybrid Fund will be our debt fund offering with a slice of equity exposure, REITs and InvITs. The scheme could be considered as a ‘one-stop shop’ for your debt needs.”

About the scheme’s investment strategy, Rajeev Thakkar, Chief Investment Officer, PPFAS Mutual Fund said, “The scheme will adopt a flexible model that will allow the fund manager to move between accrual and duration related instruments. These include the sovereign, State Government, PSU and Corporate securities across all maturities. The fund will have 10 to 25% exposure in equity and equity-related instruments. The allocation can be increased or reduced using arbitrage.”

Exit load

While no exit load will be levied for the 10% of units from the date of allotment, however, 1% load will be applicable if redeemed within one year from the date of allotment for the beyond 10% of the units. No exit load will be levied if redemption is made after 1 year from the date of allotment of units.

Investor takeaways

For investors in Parag Parikh Conservative Hybrid Fund, the debt allocation has the potential to provide investors with a regular income – in the form of rent or dividend. The non-debt portion has the potential to grow in the Net Asset Value owing to changes in the market-price of the underlying assets over a period of time.

Such a fund is ideal for those desiring diversified asset allocation within one scheme, and who want to avoid a fund that is into active trading in debt securities at every movement in interest rates.

The fund will be taxed like any other debt fund. This means long term capital gain tax will be 20% with indexation, plus surcharge and cess for units sold after holding for more than 36 months. Short term capital gain tax will be 30%, plus surcharge and cess for units sold after holding for less than 36 months.

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