Hybrid funds are best suited to handle current market volatility

In 2024, investors felt tremors of a volatile market as corporate earnings growth started slowing in the second half of the year

- Abhinaba Saha

With corporate earnings growth tapering and global headwinds strengthening, hybrid funds offer the best risk-adjusted returns to investors, said market experts at Mint's 17th BFSI Summit in Mumbai.

Hybrid funds have well-balanced portfolios of debt and equity to take advantage of the best of all asset groups, the experts said, adding that investors should temper their equity return expectations as volatility will be a persistent theme in the medium term.

"Over a span of three or four decades, around 25% of the times equities have underperformed assets like bonds, returning less than 7-8% annually, particularly during times of volatility," Kalpen Parekh, managing director and chief executive of DSP Mutual Fund, said at the summit.

The benchmark Nifty 50 index returned only about 9% in 2024, much lower than 2023's 19%. After a post-covid bull run for three years, investors felt the tremors of a volatile market in 2024 as corporate earnings growth started slowing in the second half of the year. Lower government spending, moderating household credit, sticky inflation and slow urban consumption hit corporate earnings for the better part of 2024-25.

Earnings per share downgrades have accelerated over the last six months as profit margin tailwinds continue to taper for India Inc, making it hard for Indian equities to justify their lofty valuations and resulting in steep corrections.