Such hybrid funds are in fashion now. They leave investors confused about how to fit such schemes into their asset allocation

Moneylife Digital Team

Sundaram Mutual has come up with a new fund offer (NFO), the Sundaram Equity Plus, which will put money into equities as well as in gold ETFs. It is an open-end equity scheme. The strategy would be to invest up to 65% in equities and its related instruments and the balance up to 35% in gold ETF schemes available in India.

Hybrid schemes that combine equity, gold and fixed income have been the flavour of the whole of last year. Religare Mutual Fund was the first fund house to launch such an asset allocation product in April 2010, with a scheme called Religare Monthly Income Plan (MIP) Plus that would invest in fixed income, gold and equity. Similarly, Canara Robeco launched its own hybrid plan called "Indigo Fund".

These funds claim to offer exposures to different asset classes within the same scheme, especially those that have a low correlation. So if you have a period when equity is not looking bullish, then gold will take care of it. Similarly there are phases when equity would do well and not gold. So, the investor gets to ride different assets in different cycles through the same scheme. At least that is the theory behind these all-in-one schemes.

So does this make sense, and should you go for Sundaram Equity Plus? The question is, where would you place a scheme that divides your money into different assets (gold and equity)? It is not clear to us, how an investor will decide how much to put into a scheme like this, when he already has money invested in gold ETFs and/or equity schemes. Is such a scheme meant for those who have no investment in either equity or gold?

If an investor has investments in equity and not in gold, he could buy some gold ETF. So what specific role does such a scheme perform that existing products cannot? Fund companies do not offer any guide. Indeed, they have little contact with investors, preferring to deal only through distributors whose interest in fund products has been dwindling. Fund companies concentrate on devising products, leaving it to the investor to decide how the new fund will fit into their financial planning. Thus, investors are more confused how to deal with such hybrid schemes.

This fund will be benchmarked against the S&P Nifty for the equity part and prices of gold for the gold portion of the portfolio. The NFO opened on 4 May 2011 and will close on 16 May 2011.