Why this ₹48,450 crore fund manager says it's time for a balanced hybrid fund

Roshan Chutkey, fund manager at ICICI Prudential AMC overseeing schemes worth ₹48,450 crore, believes India has entered what he calls a "moderate-return environment" — the reasoning behind the newly launched ICICI Prudential Balanced Hybrid Fund, whose NFO is open for subscription July 14, investing 40-60% each in equity and debt.In this interview with ET Markets, Chutkey explains why a balanced approach, not aggressive equity bets, suits the next 12-24 months. Edited excerpts:You have said this is the right time for a Balanced Hybrid Fund. Why do you believe so? Does that also mean you are structurally less bullish on equities over the next 12-24 months than you were a year ago?If you look at the macro backdrop, global growth is slowing and global trade remains under pressure. Major economies across the world continue to face their own structural challenges. While India has remained relatively resilient, it cannot remain completely insulated from global headwinds. The positive aspect is that India’s policymakers have been proactive in addressing these challenges. Besides, our corporate balance sheets are in good shape. Also, valuations for many large cap names are reasonable compared to their own fundamentals. Taken together, this suggests we are entering a moderate-return environment.A few years back, I was relatively cautious because in a slowing global environment, consumption and private investment by themselves cannot drive growth. And now, while government spending has been fiscally prudent, with a sustained rupee depreciation policy of the last 18 months, exports can do the heavy lifting of supporting growth. On an incremental basis, policy has become more favourable.Therefore, while I remain constructive on equities, a balanced approach is likely to be an optimal path for investors. This is because I do not expect an exceptionally strong bull market over the next couple of years.The fund will invest 40-60% in equities. If the fund were to begin investing today, how would you approach the asset allocation?Investors choosing this product have already made an important asset-allocation decision by opting for a balanced strategy. While we do have an internal allocation model, this product is designed to maintain meaningful exposure to both equity and debt. Investors should think of it as a solution where the broad asset allocation is already pre-decided in line with their risk appetite.Doesn’t that also increase the chances of underperformance during a strong equity bull market?If we witness a roaring bull market, then yes, a Balanced Hybrid Fund may underperform a pure equity fund. That is because a portion of the portfolio will always remain invested in debt. However, investors are also rewarded with significantly lower volatility and a smoother investment journey.If someone is starting their investment journey today, would you recommend investing entirely in a Balanced Hybrid Fund or building a portfolio of diversified equity funds?For a first-time investor, a Balanced Hybrid Fund can be a starting point since new investors haven’t experienced market corrections or bear markets. Beginning with a balanced strategy provides investors with a smoother entry into equity investing while cushioning the portfolio from sharp drawdowns. Such an approach shields investors from the full volatility of an aggressive equity portfolio from day one.Why choose a Balanced Hybrid Fund instead of other hybrid categories?Every category within the hybrid fund universe has a distinct investment objective and is designed to address a specific investment need. Aggressive Hybrid Funds prioritise growth over capital preservation, while Conservative Hybrid Funds place greater emphasis on preserving capital. Balanced Hybrid Funds seek to strike a balance between these two objectives, aiming to deliver long-term wealth creation while helping manage downside risks. In that sense, it is balanced in nature.Balanced Advantage Funds have a more flexible