Fund of Fortnight

This is our mutual fund recommendation. Every fortnight , we recommend one open-ended equity diversified fund that has the best potential of returns for the next one year considering its constituents remain the same.  

Principal Hybrid Equity Fund - Direct Plan (Growth)

Reason for recommendation

In the last one and a half months, frontline equity indices are down by more than 15 per cent. And looking at the volatility, one would not be surprised if they go down further over the next few weeks. In the same period, all the debt funds except for the 'credit risk' ones have performed well. Equity, though it performs better in the long run, may go through a serious bout of volatility in the short period, which may make your investment experience sour. Hence, investing in funds that invest in both equity and debt makes better sense now. Principal Hybrid Equity fund is one such hybrid fund that invests in both debt and equity and is hence less volatile compared to a pure equity fund. The performance of the fund has improved in the last few years after a change of the fund manager.

Except for the year 2019, the fund has remained at the top quartile in terms of yearly performance since 2016 following this change in management. Nevertheless, in a longer period of five years and 10 years it has remained at the top quartile in terms of performance in its category. The fund has invested 72.34 per cent of its corpus in equity, 15.92 per cent in debt and 11.74 per cent in cash at the end of February 2020. In volatile times, larger cash and debt holding contains the fall in the NAV of the fund. What also makes the portfolio resilient is equity holding that is overweight on technology and consumer defensive that remains stable during volatile times. Hence, the fund is suitable to a risk-aversive investor who does not want much volatility in returns.