SBI Conservative Hybrid Fund (SCHF) stands out within the category as the only fund that combines an active duration strategy with higher exposure to AA-rated debt instruments. This strategic allocation to AA credit instruments enables the fund to achieve higher accrual income, resulting in relatively better returns compared to its peers, though this approach introduces credit risk.
The fund invests at least 75 per cent in fixed income instruments and permits a maximum of 25 per cent in equities. The equity portion, which usually ranges between 20 and 25 per cent based on market conditions and valuations, is actively managed. The fund’s equity strategy aims to identify stocks with strong earnings potential, robust financials, high governance standards, and sound ESG profiles. It follows a sector-and-market-cap-agnostic investment approach, offering the flexibility to invest across large, mid, and small-cap stocks. However, a risk-control framework mandates that at least 30 per cent of the equity portion must be allocated to large-cap stocks.
On average, over the past five years, the fund has allocated around 10 per cent of its total assets to large-caps, 6 per cent to mid-caps, and 8 per cent to small-caps. Currently, it holds overweight positions in capital goods and consumer durables while remaining underweight in IT and auto. The equity portfolio is constructed with a long-term perspective, typically with a three-year investment horizon.
Active duration play
The debt portion is managed with active duration and credit strategies. The fund has been more agile than its peers in adjusting portfolio maturity in response to interest rate cycles. For instance, it increased average maturity to eight years during the rate cuts in October 2020 (against a category average of 4.5 years) and to 13 years in April 2024 (category average 6.6 years). Conversely, during rising rate periods such as March 2022, it reduced average maturity to as little as 1.8 years (category 3.3 years). As of the latest data, the average maturity stands at seven years compared to the category average of 8.7 years, with the Macaulay Duration ranging from 1.6 to 5.8 years over the last five years.
High yield strategy
In terms of credit strategy, the fund strategically allocates to less than AAA securities, including AA+, AA, and AA-, with such instruments accounting for between 10 and 33 per cent of the portfolio over the past five years. Its exposure to AAA rated bonds has ranged from 8 to 39 per cent during the period. For AA minus papers, the fund imposes stricter controls, capping maturity at four years and limiting total exposure to below 5 per cent of assets.
It has maintained an average 3 per cent exposure to AA minus papers, with Avanse Financial Services and Infopark Properties being two current holdings. Besides this fund, Nippon India Conservative Hybrid and ICICI Prudential Regular Savings Fund are the other two funds in the category with significant allocations to AA-rated debt. SCHF also maintains an average 20 per cent allocation to government securities, which supports liquidity and helps in active interest rate calls.
Category beating returns
Performance-wise, SBI Conservative Hybrid Fund has consistently outperformed many peers, ranking in the top two quartiles across most timeframes over the last seven years. Notably, it delivered top-two-quartile one-year returns in 86 per cent of the rolling periods during this time.
An analysis of five-year rolling returns over the last 10 years shows an average annualised return of 9.2 per cent, well above the category average of 7.5 per cent, with returns ranging from a low of 6.6 per cent to a high of 13.4 per cent.
As of May 30, 2025, the fund’s debt portfolio had a yield to maturity (YTM) of 7.3 per cent, ahead of the category average of 6.7 per cent. The expense ratio for the regular plan is 1.54 per cent, below the category average of 1.8 per cent, whereas the direct plan’s expense ratio is 1.05 per cent, slightly above the category average of 0.91 per cent.
Despite its active duration management, the fund has maintained a relatively low annualised standard deviation of 3.9 per cent, marginally below the category average of 4 per cent. Given its notable allocation to non-AAA debt assets and risk-return profile, the fund is suited for investors with a moderate risk appetite and a minimum investment horizon of five years.
Published on July 5, 2025