Arthgyaan

Supporting everyone's personal finance journey

Should you invest in hybrid funds via SIP for short-term goals?

This article shows you how different categories of hybrid funds have performed for regular SIP investments for short durations.

Should you invest in hybrid funds via SIP for short-term goals?


Posted on 20 Mar 2024
Author: Sayan Sircar
11 mins read
📢Get new post notifications on WhatsApp!

This article shows you how different categories of hybrid funds have performed for regular SIP investments for short durations.

Should you invest in hybrid funds via SIP for short-term goals?

This article is a part of our detailed article series on the concept of hybrid mutual funds in India. Ensure you have read the other parts here:

📚 Topics covered:

What are hybrid mutual funds?

Hybrid funds offer a mix of multiple asset classes (equity/debt/gold/arbitrage/international stocks) in a single fund. The biggest selling points of a hybrid fund are:

  • tax-free rebalancing: buys and sells inside a mutual fund does not incur any tax.
  • emotion-free asset allocation changes: many investors miss out on rebalancing either due to lack of active monitoring, knowledge or fear of taxes
  • one-stop portfolios for certain goals: for very short-term (less than five years) or very long-term goals (more than 10 years), certain hybrid funds can be considered as a part of a 1-2 fund simple portfolio.

We have discussed about the different types of hybrid funds in detail here: A primer on hybrid mutual funds: what are they and when to invest in them

Given that hybrid funds invest in both equity and debt, and the fund manager rebalances them without tax or any action from the investor, they can be considered for a one-stop portfolio for goals. Given that we do not have a long period of data in the Indian context with many different funds existing. We therefore will consider short-term investment horizons via SIP and see how much wealth has been created historically.

We will present a rolling-returns analysis for both fixed SIP (the same amount being invested throughout) and a step-up SIP (where the amount invested/month is increased every year). We have covered the importance of stepping up your SIP here: What is a step-up SIP and how much more wealth does it create vs. a normal SIP?.

Data for SIP and step-up SIP

We show an analysis, using AMFI end-of-day NAV data

  • data is for month-ends since 2013 for direct plans
  • we have calculated for 1Y, 2Y, 3Y, 5Y fixed SIP
  • we have also calculated for 3Y and 5Y 10% step-up SIP
  • fund categories considered are: Aggressive Hybrid, Conservative Hybrid, Equity Savings, Dynamic Asset Allocation, Balanced Advantage (BAF) and Arbitrage
  • all return figures are averages for all the funds in that category and are pre-tax

Average short-term rolling SIP returns for hybrid funds

Average 1Y SIP 2Y SIP 3Y SIP 5Y SIP 3Y SIP (10% step-up) 5Y SIP (10% step-up)
Aggressive Hybrid 16.3% 14.0% 12.9% 12.0% 11.9% 10.5%
Conservative Hybrid 9.8% 9.2% 8.8% 8.1% 8.1% 7.0%
Equity Savings 9.7% 9.1% 8.8% 8.4% 8.1% 7.3%
Dynamic Asset Allocation 9.8% 9.3% 9.2% 9.0% 8.5% 7.8%
Balanced Advantage 13.1% 11.7% 10.9% 10.5% 10.1% 9.1%
Arbitrage 6.6% 6.4% 6.2% 6.0% 5.7% 5.2%

Worst short-term rolling SIP returns for hybrid funds

Worst 1Y SIP 2Y SIP 3Y SIP 5Y SIP 3Y SIP (10% step-up) 5Y SIP (10% step-up)
Aggressive Hybrid -16.3% -2.9% -0.6% 0.0% -0.6% 0.0%
Conservative Hybrid -7.3% 0.0% 1.5% 3.9% 1.2% 3.2%
Equity Savings -14.5% -4.5% -1.6% 1.8% -1.7% 1.2%
Dynamic Asset Allocation -19.1% -3.7% -1.3% 3.1% -1.4% 2.3%
Balanced Advantage -21.7% -2.2% -0.6% 0.9% -0.7% 0.4%
Arbitrage 3.4% 3.9% 4.1% 4.8% 3.7% 4.1%

We have deliberately skipped showing maximum returns since that exhibit will present a misleading picture to investors due to anchoring bias.

Short-term rolling SIP risk for hybrid funds

Risk (Std.Dev) 1Y SIP 2Y SIP 3Y SIP 5Y SIP 3Y SIP (10% step-up) 5Y SIP (10% step-up)
Aggressive Hybrid 16.7% 9.9% 6.6% 5.8% 6.2% 5.2%
Conservative Hybrid 6.3% 4.4% 3.5% 3.0% 3.2% 2.6%
Equity Savings 7.2% 4.9% 3.8% 3.3% 3.6% 2.9%
Dynamic Asset Allocation 8.7% 5.4% 4.1% 3.8% 3.9% 3.4%
Balanced Advantage 11.9% 7.1% 5.0% 4.4% 4.6% 3.9%
Arbitrage 2.3% 2.2% 2.1% 2.1% 1.9% 1.8%

Short-term rolling SIP return/risk for hybrid funds

Return/Risk 1Y SIP 2Y SIP 3Y SIP 5Y SIP 3Y SIP (10% step-up) 5Y SIP (10% step-up)
Aggressive Hybrid 0.98 1.41 1.96 2.07 1.93 2.03
Conservative Hybrid 1.55 2.10 2.52 2.73 2.50 2.71
Equity Savings 1.34 1.88 2.29 2.52 2.25 2.48
Dynamic Asset Allocation 1.13 1.73 2.25 2.38 2.21 2.34
Balanced Advantage 1.10 1.65 2.21 2.37 2.18 2.32
Arbitrage 2.82 2.91 2.97 2.82 2.97 2.82

Did you know that we have a private Facebook group which you can join for free and ask your own questions? Please click the button below to join.

Rolling SIP returns for hybrid funds vs. recurring deposit

Using a recurring deposit or a “safer” fund type like equity arbitrage is a common choice given to investors looking at short-term goals. We have therefore shown how these funds have performed vs. a post-tax 5% return from a recurring deposit. The table shows the percentage of cases where the hybrid fund has beaten the recurring deposit.

More than FD 1Y SIP 2Y SIP 3Y SIP 5Y SIP 3Y SIP (10% step-up) 5Y SIP (10% step-up)
Aggressive Hybrid 69% 78% 82% 81% 81% 80%
Conservative Hybrid 73% 81% 86% 84% 84% 83%
Equity Savings 70% 79% 82% 82% 80% 78%
Dynamic Asset Allocation 67% 76% 82% 82% 80% 78%
Balanced Advantage 70% 80% 82% 83% 81% 83%
Arbitrage 73% 71% 73% 77% 65% 47%

To understand how to use this data about hybrid funds:

Caveats and takeaways from this analysis

We have captured average and worst returns over a 10-year period. However, the last 10-years has seen a massive bull-run and therefore all return figures are high in general. The only falls are due to the COVID-19 market crash in March 2020.

Generally, drawing any conclusion from such short-term data is not wise. Investors should be careful putting the conclusions in practice.

Which goals can be funded via short-term SIP in hybrid funds?

Once you understand the caveats described above, you will realise that with a bit of prudent risk management, you can use hybrid funds for certain short-term goals:

  • goals where the end date is flexible: a good example is buying a house or a car. If the market falls just before the purchase date, you can defer the purchase
  • goals where you can take a loan: goals like house down-payment or college admission can be funded easily with a loan in case the corpus falls short of the target

Ultimately, short-term goals will have to be managed together along with long-term goals like retirement and children’s college education like this.

Calculation of SIP amount for multiple goals

Once you combine all of them together, a tool like the Arthgyaan Goal-based investing calculator, then you can see the asset classes required at a portfolio level.

What's next? You can join the Arthgyaan WhatsApp community

You can stay updated on our latest content and learn about our webinars. Our community is fully private so that no one, other than the admin, can see your name or number. Also, we will not spam you.

To understand how this article can help you:

If you have a comment or question about this article

The following button will open a form with the link of this page populated for context:

If you liked this article, please leave us a rating

The following button will take you to Trustpilot:

Discover an article from the archives

Worked out case studies for goal-based investing

Previous and next articles:

<p>This article shows the minimum income needed to buy a luxury property in India.</p>
House Purchase
What should be your income to buy a luxury property in India?

This article shows the minimum income needed to buy a luxury property in India.

Published: 17 March 2024

9 MIN READ


<p>This article shows you the right way to apply Section 54F to save tax when you sell shares and mutual funds to buy an under-construction house.</p>
Tax Calculator House Purchase
How to save tax using Section 54F for an under construction house?

This article shows you the right way to apply Section 54F to save tax when you sell shares and mutual funds to buy an under-construction house.

Published: 24 March 2024

4 MIN READ


Latest articles:

<p>This article explains what happens if you withdraw from your EPF to buy a house and who should or shouldn’t withdraw from EPF for this reason.</p>
House Purchase
Should you withdraw from your EPF to buy a house?

This article explains what happens if you withdraw from your EPF to buy a house and who should or shouldn’t withdraw from EPF for this reason.

Published: 21 April 2024

7 MIN READ


<p>This article looks at the various stages of your career from the perspective of maximum wealth creation.</p>
Portfolio Construction
Which stage of your career is most important for wealth creation?

This article looks at the various stages of your career from the perspective of maximum wealth creation.

Published: 17 April 2024

4 MIN READ


Topics you will like:

Asset Allocation (21) Basics (8) Behaviour (12) Budgeting (12) Calculator (25) Case Study (6) Children (17) Choosing Investments (40) FAQ (12) FIRE (13) Gold (21) Health Insurance (5) House Purchase (29) Insurance (16) International Investing (12) Life Stages (2) Loans (17) Market Data (7) Market Movements (16) Mutual Funds (46) NPS (7) NRI (19) News (18) Pension (8) Portfolio Construction (52) Portfolio Review (27) Reader Questions (8) Real Estate (7) Research (5) Retirement (38) Review (15) Risk (6) Safe Withdrawal Rate (5) Set Goals (28) Step by step (15) Tax (59)

Next steps:

1. Email me with any questions.

2. Use our goal-based investing template to prepare a financial plan for yourself.

Don't forget to share this article on WhatsApp or Twitter or post this to Facebook.

Discuss this post with us via Facebook or get regular bite-sized updates on Twitter.

More posts...

Disclaimer: Content on this site is for educational purpose only and is not financial advice. Nothing on this site should be construed as an offer or recommendation to buy/sell any financial product or service. Please consult a registered investment advisor before making any investments.

This post titled Should you invest in hybrid funds via SIP for short-term goals? first appeared on 20 Mar 2024 at https://arthgyaan.com


We are currently at 393 posts and growing fast. Search this site:
Copyright © 2021-2024 Arthgyaan.com. All rights reserved.