Conservative investors looking to gain some exposure to equities and also tax efficiency in their investments yet worried about rich equity valuations can consider hybrid funds. These funds combine two or more assets which helps in reducing volatility and drawdown in portfolios.
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Fund managers point out that while largecap valuations are currently reasonable, mid- and small-cap stocks remain expensive.
ICICI Prudential MF data show the Nifty 50 representing largecaps trades at a PE of 23, slightly lower than its five-year average of 24.4. However, the BSE Midcap PE and the BSE Smallcap 250 trades at a rolling five-year average PE of 43.1 and 43.2, sharply higher than their five-year average PEs of 33.8 and 27.4, respectively, indicating these stocks are expensive.
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«The equity component in hybrid funds consists primarily of largecap stocks where valuations are reasonable,» said Nikhil Gupta, founder, Sage Capital.
Wealth managers point out that most hybrid funds have negligible exposure to the mid- and small-cap space.
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