From this month onwards, I have started to invest in Parag Parikh Conservative Hybrid Fund. A look at some of the fund’s profile and the reasoning behind my decision.
The fund is on the verge of completing one year (launched May 26th 2021) and after observing its portfolio for some months we included it in our Handpicked List of Mutual Funds Apr-Jun 2022 (PlumbLine).
I have been investing for my son’s future for the last 12.5 years. He has another six years to go to college. For most of this time, the equity allocation was 60%. I recently dropped it down to 55%. I will be decreasing the equity allocation further over this year and beyond.
The investments used for this goal are:
- Equity
- HDFC Bal Adv Fund
- ICICI Multi-asset Fund
- Mirae Large cap
- Debt
- ICICI Arbitrage Fund
- ICICI Gilt Fund
- PPF minor account in his name
- PPF account in my mother’s name (was opened specifically for this purpose).
I was looking for another debt fund in between the risk profile of the arbitrage fund and a gilt fund. A fund that is more rewarding than an arbitrage fund and more stable than gilt fund rewards.
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A money market fund is an obvious candidate from a goal-based point of view. After all, it is essentially a cash-like holing which I can keep increasing as the goal deadline nears.
However, expenses for my son’s education are unlikely to stop at the UG level (which in itself is spread over 3-4 years). If he goes down the path of academia then he would need support for 10-15 years after school. If our parents did that for us (wife and me) with their sweat, toil and sacrifice, we have no excuse to not do it. If he does not, then the unspent amount will become part of our retirement corpus.
Meaning a money market fund would be a bit of an overkill. The existing arbitrage fund plays the role of “cash” well enough. The gilt fund is indeed a suitable choice for a “long term” goal such as this but it can it quite a bumpy ride. So I wanted something to stabilize the debt portfolio without going overboard doing that.
Also, we have already achieved our target corpus for this goal. So the next few years will be one of consolidation. I wanted a fund that I can continue using beyond this goal for retirement as well.
Parag Parikh Conservative Hybrid Fund fits the bill reasonably. I am sure there are many other good funds available. For example, HDFC Corporate Bond Fund or Kotak Short Term Bond Fund but my mind was set on the Parag Parikh fund and went for it (call it AMC bias if you will).
No claim is made that it is the best choice. It is a choice. If it goes bad, I will get up, dust myself and move on. There is no time or place for regret in the capital markets.
I plan to tag half the investments made to the retirement goal. For details about the retirement portfolio see Portfolio Audit 2021: How my goal-based investments fared this year.
The average portfolio maturities of the two debt funds in my portfolio are shown below. The ICICI fund as mentioned earlier is a dynamic bond kind of fund that focuses on long term bonds of varying tenure. So far the Parag Parikh Fund has had a steady portfolio but it too can be flexible.
| Month End | ICICI Gilt Fund | Parag Parikh Connservative Hybrid Fund |
| Mar-22 | 9.24 | 6.01 |
| Feb-22 | 13.21 | 6.18 |
| Jan-22 | 17.82 | 6.25 |
| Dec-21 | 21.73 | 6.33 |
| Nov-21 | 21.12 | 6.35 |
| Oct-21 | 20.79 | 6.43 |
| Sep-21 | 18.31 | 6.38 |
| Aug-21 | 17.55 | 6.40 |
| Jul-21 | 17.20 | 6.39 |
| Jun-21 | 14.27 | 6.43 |
| May-21 | 10.85 | |
| Apr-21 | 8.33 |
So Parag Parikh Conservative Hybrid Fund is expected to be lower in volatility compared to a gilt fund (unless there is a big market up or down and the 12-14% equity acts up). I expect this to reasonably bolster the debt portfolio during times when gilts are down.
Readers must appreciate that the fund invests in medium-term state development loans (about 70%) along with 12-14% equity and about 8-9% of REITs. This will not be a joyride! Investors new to debt funds should use the fund only for long-term goals without specific return expectations.
Ideas about risk appetite, asset allocation and how we decide to de-risk a portfolio change with time. In 2009 (when we started investing for our son) I probably would have never chosen a gilt fund or a conservative hybrid fund. Things change! The key is to react by looking at our own circumstances. No one can understand it better than ourselves.
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