Nippon India MF Hybrid Funds: Add richer diversification to your investment portfolio

The market has been rocked by bouts of volatility since the beginning of this year (CY 2025) due to variety of factors, primarily Trump Administration’s trade policies, geo-political tensions, rising US debt etc. Though market has rallied after RBI announced the 50 bps rate cut, there is anxiety in global equity markets due to a variety of factors. In times of uncertainty investors gravitate towards hybrid funds (see the chart below) since they can provide relative stability in uncertain economic and market conditions. In this article, we will review four Nippon India MF hybrid schemes and how they can add richer diversification to your investment portfolio.

Source: AMFI, as on 31^st May 2025

How asset allocation works in market cycles?

Different asset classes have low or even negative correlation of returns in different investment cycles (see the chart below). Diversifying your investment across asset class will bring stability to your portfolio and improve consistency i.e. if one asset class underperforms, the outperformance of another asset class will balance the risks.

Source: NSE, MCX, MSCI, Investing.com, as on 31^st May 2025. Equity is represented by Nifty 50 TRI, fixed income is represented by Nifty 10 year Benchmark G-Sec Index, gold by MCX spot prices, and international by S&P 500 in INR.

Nippon India Balanced Advantage Fund

Also known as Dynamic Asset Allocation Funds, these funds dynamically manage their asset allocation; there is no upper or lower limit for equity or debt allocations. Nippon India Balanced Advantage Fund has been one of the consistent performers among Dynamic Asset Allocation or Balanced Advantage Fund (please see the most consistent balanced advantage funds).

The scheme uses an in-house proprietary dynamic asset allocation model which takes into consideration fundamental, technical and macro parameters:-

• Valuations: The model uses 1 year forward P/E. Valuations are fulcrum of the model


• Trend following/momentum: This is a unique parameter which aids in maximizing Upside Potential and Limiting downside risk


• Trade weighted US Dollar: A strong Dollar typically coincides with weaker phases of Equity prices, while a weaker Dollar coincides with strong equity performance


• Global Demand Indicators: A combination of Lumber/Copper/Nickel prices acts as a strong indicator of global economy and markets.

The chart below shows the 3 year rolling returns of Nippon India Balanced Advantage Fund versus the Balanced Advantage Funds category average since 1^st January 2020. You can see that the fund was able to consistently outperform the category average by a big margin. Performance consistency in different market conditions is in our view one of the most important performance parameters, because investors are looking for consistency and stability when they invest in Balanced Advantage Funds. The fund did not give negative returns and gave 12%+ CAGR returns in more than 70% of the instances (observations) in the last 5 – 6 years.

Source: Advisorkhoj Research, as on 9^th June 2025.

The fund has been in the top 2 quartiles in 8 out of last 12 quarters (see the graphic below). This shows strong outperformance consistency and the robustness of the dynamic asset allocation model of the fund relative to peers.

Source: Advisorkhoj Research, as on 31^st March 2025.

Nippon India Multi Asset Allocation Fund

Multi Asset Allocation Funds are mandated by SEBI to invest in at least 3 or more asset classes. Minimum allocation to each asset class will be 10%. Nippon India Multi Asset Allocation Fund is a "true to label multi asset fund" as it invests in 4 asset classes:-

• Equity Allocation - Multi Cap investment strategy, blend of growth and value stocks, large cap bias, focus on alphas creation through stock selection.


• Debt Allocation - Debt portfolio is managed with a moderate duration; duration range of 1.25 – 2.25 years, predominantly invest in high credit quality assets, focused on Accrual Income


• Commodities allocation – The fund invests in Exchange Traded Commodity Derivatives (ETCDs). Maximum commodity exposure will be 20%. Minimum 10% investment in gold through ETFs / ETCDs. 5 – 10% exposure to other commodities, including silver ETFs.


• Overseas equity allocation - Investment across geographies through investment in MSCI World Index. Overseas equities could act as an effective diversification tool as well as benefit from any currency depreciation

The fund was launched in August 2020 and is one the few multi asset allocations funds which has allocations to international equities. The fund has consistently been in the top quartile for 9 successive quarters from Q3 FY 2023 to Q3 FY 2025 (see the chart below).

Source: Advisorkhoj Research, as on 31^st March 2025.

The chart below shows the 3 year rolling returns of Nippon India Multi Asset Allocation Fund versus the Multi Asset Allocation Funds category average since the inception of the fund. You can see that the fund was able to consistently outperform the category average over the last 5 years or so. Though this fund was slightly more volatile than the Balanced Advantage Fund, it was able to give 12%+ CAGR returns in more than 90% of the instances (observations) over 3 year investment tenures across different market conditions since its inception.

Source: Advisorkhoj Research, as on 9^th June 2025.

Nippon India Equity Savings Fund

Equity savings funds can partially hedge their equity allocation using derivatives, while maintaining gross equity allocation of at least 65% - thus these funds enjoy equity taxation. These funds must invest at least 10% of their assets in debt and money market instruments. The asset allocation of Nippon India Equity Savings Fund is as follows:-

• Equity Allocation – The active equity (unhedged equity) allocation of the fund can range from 25 – 40%. The equity portion will have high active share (minimum 60%) and have a large cap bias (minimum 65%). It invests across industry sectors.


• Arbitrage Allocation – The fund allocates 25 – 70% to arbitrage opportunities. Arbitrage allocation reduces risk and ensures equity taxation for the fund.


• Debt allocation – The debt allocation of the fund can range from 10 – 35%. The modified duration of the debt portion is maintained between 2 – 4 years (moderate interest rate risk). The credit quality is high.

The chart below shows the3 year rolling returns of Nippon India Equity Savings Fund versus the Equity Savings Funds category average since 1^st January 2020. You can see that the fund was able to consistently outperform the category average over 3 year investment tenures most of the times.

Source: Advisorkhoj Research, as on 9^th June 2025.

The chart below shows the drawdowns of Nippon India Equity Savings Fund versus the leading broad market index Nifty 50 TRI. You can see that the fund was able to limit downside risks for investors

Source: Advisorkhoj Research, as on 9^th June 2025.

Nippon India Arbitrage Fund

The fund follows the arbitrage strategy. Arbitrage can be tax efficient alternatives to low risk investments like liquid funds etc. Investors can also use arbitrage funds for SWP in volatile markets to benefit from Rupee Cost Averaging. Arbitrage funds can be good investment options in volatile market because futures / cash spreads tend to widen in volatile markets. Nippon India Arbitrage Fund has outperformed the cate

Source: Advisorkhoj Research, as on 9^th June 2025.

Taxation

Risk Profile

Why invest in hybrid funds now?

• Global uncertainty due to tariff wars and ongoing trade talks between the US and its trading partners.


• Rising US debt and concerns about widening discal deficit in the United States may affect FII risk sentiments.


• Geo-political risks due to escalating situation in the Russia Ukraine war.


• The market is slowly recovering after severe volatility in the first 3 months of CY 2025. We are seeing profit booking at higher levels.


• Gold outperformed equity in CY 2024 and is continuing to see increasing flows, making it the top performing asset class on a YTD basis in CY 2025.

Source: Advisorkhoj Research, as on 9^th June 2025.

Who can invest in Nippon India hybrid funds?

• Investors looking for capital appreciation over long investment horizons.


• Investors who want to reduce portfolio volatility by diversifying across multiple asset classes.


• Investors with minimum 3 – 5 years investment tenure.


• Investors with moderately high to high-risk appetites.


• You can select Nippon India Equity Savings, Balanced Advantage and Multi Asset Allocation Funds depending on your risk appetite. You can also invest in a combination of 2 or more funds.


• If you plan to invest in any Nippon India MF equity scheme, but are worried about volatility, you can invest through STP from Nippon India Arbitrage Fund. Be mindful for exit loads and plan your STP accordingly.


• You can also park your idle funds in Nippon India Arbitrage Fund to take advantage of tax efficient stable returns.

Investors should consult their financial advisors or mutual fund distributors which Nippon India MF hybrid fund will be suitable for their investment needs.