ICICI Prudential Equity & Debt Fund: Striking The Right Balance
Sep 26, 2019

Author: Divya Grover

Image source: photo created by freepik - www.freepik.com

The dynamics in equity markets constantly go through series of change and is thus a challenging task to predict its movement and superiority over other asset class. Aggressive hybrid fund offer a solution to this problem as they aim to benefit from the mix of equity and debt. While equities have the potential to offer capital appreciation, the allocation to debt could offer the much needed stability to investors.

ICICI Prudential Equity & Debt Fund (erstwhile ICICI Prudential Balanced Fund) is one such aggressive hybrid fund that aims to maximise wealth at a relatively lower risk.

Launched in November 1999, the fund has a track record of almost two decades and is one of the largest funds in the category.

Mr Sankaran Naren and Mr Atul Patel manage the equity portion of the scheme, while Mr Manish Banthia manages the debt portion.

Investment objective: IPEDF aims to generate long term capital appreciation and current income from a portfolio that is invested in equity and equity related securities as well as in fixed income securities.

Graph 1:  Growth of Rs 10,000, If Invested In IPEDF 5 Years Ago

Had you invested Rs 10,000 in IPEDF five years back on September 24, 2014, it would have grown to Rs 16,818 as on September 24, 2019. This translates into compounded annualised growth rate of 10.96%. In comparison, a simultaneous investment of Rs 10,000 in its benchmark CRISIL Hybrid 35+65 Aggressive Index would now be worth Rs 15,898 (a CAGR of 9.71%). As can be seen in the chart alongside, the fund has generated significant lead over the benchmark in the last five years.

Graph 1: Growth of Rs 10,000, If Invested In IIGOF 5 Years Ago
Data as on September 24, 2019
(Source: ACE MF)

Graph 2:  IPEDF Year-on-Year Performance

Graph 2: IIGOF Year-on-Year Performance
*YTD as on September 24, 2019
(Source: ACE MF)

The year-on-year performance comparison of IPEDF vis-à-vis its benchmark CRISIL Hybrid 35+65 Aggressive Index shows that the fund outpaced the benchmark in 5 out of last 8 calendar years. It outperformed the benchmark from CY 2011-2014 and CY 2016-2017. The fund performed poorly in CY 2018 and generated negative return even as the benchmark generated positive returns. In the current year too the fund’s performance is seen lagging the benchmark.

Table 1: IPEDF Performance vis-a-vis category peers

Scheme Name Corpus (Cr.) 1-year (%) 2-year (%) 3-year (%) 5-year (%) Std Dev Sharpe
Principal Hybrid Equity Fund 1,559 0.22 10.89 14.95 14.91 10.38 0.05
Mirae Asset Hybrid - Equity Fund 2,429 6.30 11.47 14.46 NA 9.61 0.11
ICICI Pru Equity & Debt Fund 23,288 2.87 8.61 13.18 15.41 9.57 0.03
Sundaram Equity Hybrid Fund 1,722 5.26 9.95 12.45 11.02 8.64 0.05
HDFC Hybrid Equity Fund 20,696 1.89 8.22 12.21 15.57 9.28 0.05
Canara Rob Equity Hybrid Fund 2,341 4.81 9.68 12.18 14.91 9.03 0.04
SBI Equity Hybrid Fund 29,354 4.33 10.25 11.54 15.26 9.34 0.06
DSP Equity & Bond Fund 5,929 0.72 6.76 10.99 14.76 11.37 0.01
Reliance Equity Hybrid Fund 9,250 -2.98 6.65 10.39 14.22 11.39 -0.04
Kotak Equity Hybrid Fund 1,402 -0.31 5.37 10.12 NA 10.44 -0.02
L&T Hybrid Equity Fund 8,219 -1.66 6.28 9.96 14.70 10.01 -0.02
Aditya Birla SL Equity Hybrid '95 Fund 11,477 -1.87 5.47 9.90 14.11 9.83 -0.06
Franklin India Equity Hybrid Fund 1,812 2.12 7.09 9.58 14.39 8.46 -0.04
Baroda Hybrid Equity Fund 548 -3.03 5.67 9.45 10.86 10.79 -0.06
UTI Hybrid Equity Fund 4,913 -2.55 5.17 9.45 11.13 9.78 -0.07
Edelweiss Aggressive Hybrid Fund 6 2.64 8.08 9.16 11.90 9.93 -0.01
Shriram Hybrid Equity Fund 57 2.72 7.60 9.10 9.45 9.24 -0.04
Quant Absolute Fund 2 2.55 7.43 8.93 13.32 10.91 -0.03
LIC MF Equity Hybrid Fund 356 3.30 6.21 8.70 8.78 10.58 -0.01
Tata Hybrid Equity Fund 4,219 1.43 5.56 8.15 13.39 9.62 -0.07
CRISIL Hybrid 35+65 - Aggressive Index 4.36 8.95 11.23 11.79 8.31 0.03
Returns are on a rolling basis and in %, calculated using Direct Plan - Growth option. Those depicted over 1-Yr are compounded annualised.
Data as on September 24, 2019
(Source: ACE MF)
*Please note, this table only represents the best performing funds based solely on past returns and is NOT a recommendation. Mutual Fund investments are subject to market risks. Read all scheme related documents carefully. Past performance is not an indicator for future returns. The percentage returns shown are only for indicative purposes.

IPEDF outperformed the average category peers across rolling periods. The fund lagged the benchmark on 1-year and 2-year rolling period. However, it managed to outpace the index in the 3-year and 5-year rolling period.

In fact, it stood among the top category performers on a 3-year and 5-year rolling period basis. Principal Hybrid Equity Fund, Mirae Asset Hybrid - Equity Fund, HDFC Hybrid Equity Fund and SBI Equity Hybrid Fund were the other top performers during the period.

In terms of risk-return parameters, the fund undertook lower risk as compared to average category peers but higher risk as compared to benchmark. But it could not manage to deliver better risk adjusted returns than the index.

Investment strategy of IPEDF

Classified under aggressive hybrid funds, IPEDF is mandated to invest 65-80% of its assets in equity and equity related instruments and the balance in debt and money market instruments.

The fund looks to identify stocks with long term growth prospects available at modest relative valuations. Price-to-earnings ratios, dividend income potential, and earnings power is taken as financial measure for this purpose.

It adopts bottom up approach to seek companies with above-average profitability supported by sustainable competitive advantages along with top down approach to select companies from various industries. Given the risk associated with mid and small cap segment, the fund takes smaller exposure in the segment.

For the debt part of the holdings, the fund looks to identify securities which offer superior levels of yield at lower levels of risks. In addition, it takes into consideration macro-economic conditions, including the political, economic environment and factors affecting liquidity and interest rates.

Graph 3: IPEDF Portfolio Allocation And Market Capitalisation Trend

IIGOF Portfolio Allocation And Market Capitalisation Trend
Holding (in %) as on August 31, 2019
(Source: ACE MF)

IPEDF has the flexibility to invest its equity portion across market capitalisation. It invests around 70% of its assets in equities. The fund has a large cap bias with around 55-60% invested in the segment. Balance equity allocation is in mid caps in the range of 4-6% and small caps in the range of 2-4%. In the last one year there has been a marginal rise in allocation towards mid and small cap segment. The fund’s allocation in debt instruments is usually around 20-25% predominantly in corporate debt. The rest of holding is maintained in the form of cash.


Graph 4: IPEDF Top Portfolio Holdings

https://data.personalfn.com/images/Graph-4-IPEDF-Top-Portfolio-Holdings-new.JPG IPEDF Top Portfolio Holdings

Holding (in %) as on August 31, 2019
(Source: ACE MF)

IPEDF held a sizeable portfolio of 90 stocks as on August 31, 2019. The top 10 stocks are diversified across sectors and constitute 42.4% of the total holdings. ICICI Bank is the top holding in the portfolio with an allocation of 7.6%, followed by NTPC (6.2%) and Bharti Airtel (5.8%). Rest of the stocks in the top 10 holding have an allocation in the range of 2.5-4% each.

In terms of sector wise holding, the fund has the highest exposure to the banking sector at 14.3%. Power (7.7%), Telecom Services (6%), Consumer Non Durables (5.1%) and Pharmaceuticals (5.1%) follow closely behind. Oil & Gas, Finance, Mining & Metals and Petroleum Products are the other prominent sectors in the fund's portfolio.

IPEDF's debt portfolio mainly constitutes investment in corporate debts. The fund has allocation of 23.8% in corporate debt with majority of it invested in instruments of banking & finance companies. Having an average maturity of 2.48 years and modified duration of 1.89 years, the yield-to-maturity of the debt portfolio is at 8.58%.

Top Contributors

Among the stocks in the portfolio, ICICI Bank contributed the most to gains of the portfolio in the last one year with a weighted return of 1%. Infosys, Asian Paints, HCL Technologies, SBI Life Insurance and HDFC Bank were the other top contributors to the portfolio gains.

The stocks that eroded portfolio gains the most were ONGC, Vedanta, ITC, Hindalco Industries, NTPC and Sun Pharmaceuticals. These stocks are part of the fund's top holdings.

Suitability of IPEDF

IPEDF's equity portfolio is well diversified across market capitalisation and sectors which can translate into returns partially in line with the broader markets. The fund's debt portfolio has investment in moderate to high quality corporate debt.

The mixed allocation of equity and debt in the portfolio acts as a cushion against market volatility and enables decent returns across market phases and cycles. It is suitable for moderately high risk takers with investment horizon of 5 years or more.

The fund has performed well across period, especially during longer time frames. However, its risk-adjusted returns could be improved, if the fund managers manage to enhance the returns while controlling the overall risk.

Note: This write up is for information purpose and does not constitute any kind of investment advice or a recommendation to Buy / Hold / Sell a fund. Returns mentioned herein are in no way a guarantee or promise of future returns. As an investor, you need to pick the right fund to meet your financial goals. If you are not sure about your risk appetite, do consult your investment consultant/advisor. Mutual Fund Investments are subject to market risks, read all scheme related documents carefully.

Editor's note:

The last few years have not been among the best for equity mutual funds. While most funds have underperformed or are struggling to match the returns of the benchmark, there are few funds that have the potential to constantly generate alpha for its investors. And we have recently identified five such high alpha generating funds, in our latest report 'The Alpha Funds Report 2019'. Do not miss our latest research finding. Get your access to this exclusive report, right here!


About the Company including business activity

Quantum Information Services Private Limited (QIS) was incorporated on December 19, 1989.

QIS was promoted by Mr Ajit Dayal with an objective of providing value-based information/views on news related to equity markets, the economy in general, sector analysis, budget review and various personal products and investments options available to the Public. It was the first company to start equity research on an institutional level.

'PersonalFN' is a service brand of QIS and was started in the year 1999. In 1999, the Company registered the Domain name www.personalfn.com for providing information on mutual funds and personal financial planning, financial markets in general, etc. and services related to financial planning and research in various financial instruments including mutual funds, insurance and fixed income products to customers. It offers asset allocation and researched investment recommendations through its financial planning services.

Quantum Information Services Private Limited (QIS) is registered as Investment Adviser under SEBI (Investment Adviser) Regulations, 2013 and having Registration No.: INA000000680. In terms of the second proviso to Regulation 3 (1) of SEBI (Research Analysts) Regulations, 2014 the Company is not required to obtain Certificate of registration from SEBI.

Disciplinary history

There are no outstanding litigations against the Company, its subsidiaries and its Directors.

Terms and condition on which its offer research report

For the terms and condition for research report click here.

Details of associates

  1. Money Simplified Services Private Limited;

  2. PersonalFN Insurance Services India Private Limited;

  3. Equitymaster Agora Research Private Limited;

  4. Common Sense Living Private Limited;

  5. Quantum Advisors Private Limited;

  6. Quantum Asset Management Company Private Limited;

  7. HelpYourNGO.com India Private Limited;

  8. HelpYourNGO Foundation;

  9. Natural Streets for Performing Arts Foundation;

  10. Primary Real Estate Advisors Private Limited;

  11. Rahul Goel;

  12. I V Subramaniam.

Disclosure with regard to ownership and material conflicts of interest
  1. Neither QIS, it's Associates, Research Analyst or his/her relative have any financial interest in the subject Company;

  2. Neither QIS, it's Associates, Research Analyst or his/her relative have actual/beneficial ownership of one per cent or more securities of the subject Company, at the end of the month immediately preceding the date of publication of the research report;

  3. Neither QIS, it's Associates, Research Analyst or his/her relative has any other material conflict of interest at the time of publication of the research report except that QIS (PersonalFN) is, as per SEBI (Mutual Funds) Regulations 1996, an associate / group Company of Quantum Asset Management Company Private Limited and Trustees and Sponsor of Quantum Mutual Fund (QMF) and to that extent there may be conflict of interest while recommending any schemes of QMF. However, any such recommendation or reference made is based on the standard evaluation and selection process, which applies uniformly for all Mutual Fund Schemes. The payment of commission (upfront / annualized & trail), if any, for any Schemes by QMF to QIS (PersonalFN) is also at arm's length and as per prevailing market practices.

Disclosure with regard to receipt of Compensation
  1. Neither QIS nor it's Associates have received any compensation from the subject Company in the past twelve months;

  2. Neither QIS nor it's Associates have managed or co-managed public offering of securities for the subject Company;

  3. Neither QIS nor it's Associates have received any compensation for investment banking or merchant banking or brokerage services from the subject Company;

  4. Neither QIS nor it's Associates have received any compensation for products or services other than investment banking or merchant banking or brokerage services from the subject company in the past twelve months.

  5. Neither QIS nor it's Associates have received any compensation or other benefits from the subject Company or third party in connection with the research report

General disclosure
  1. The Research Analyst has not served as an officer, director or employee of the subject Company.

  2. QIS or the Research Analyst has not been engaged in market making activity for the subject Company.

Subject Company means Mutual Fund Schemes

Quantum Information Services Private Limited CIN: U65990MH1989PTC054667 Regd. Office: 103, Regent Chambers, 1st Floor, Nariman Point, Mumbai - 400 021 Corp. Office: 103, Regent Chambers, 1st Floor, Nariman Point, Mumbai - 400 021.

Email:info@personalfn.com Website: www.personalfn.com Tel.: 022 61361200 Fax.: 022 61361222 SEBI-registered Investment Adviser. Registration No. INA000000680, SEBI (Investment Advisers) Regulation, 2013

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Sep 26, 2019

Very good Regards

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