scorecardresearchWhy should you have an aggressive hybrid fund in your portfolio

Why should you have an aggressive hybrid fund in your portfolio

Updated: 23 Oct 2022, 10:00 AM IST

Deciding on the right mix of equity and debt in an investment portfolio is not easy. That’s why you must park your money in an aggressive hybrid fund that allows you to avail of the benefits of both equity and debt investments.

Putting money in an aggressive hybrid fund means availing of the benefits of both equities and debt,

Putting money in an aggressive hybrid fund means availing of the benefits of both equities and debt,

It’s okay not to rely on equities completely. Being dependent on debt funds to accumulate a corpus in the future. Having a mix of both helps. This is why many people invest in balanced advantage funds, especially, aggressive hybrid ones. 

These funds invest in stocks with a limited debt component. The allocation to debt instruments does not exceed 25 per cent in most cases as equities occupy 75 per cent of the fund portfolio. The debt component is mostly government-sponsored fixed deposits, corporate bonds and other kinds of debt instruments.

The idea behind putting money in these funds is to escape the extreme volatility in equities by seeking refuge when the market goes down. Prolonged bearish phases translate to higher interest rates on deposits and bonds This causes these funds to entail lower risk compared to pure equity funds with a higher risk-to-reward ratio. If held for a prolonged period, an aggressive hybrid fund ensures similar returns as equity funds in the long run.

How do these funds work?

Most aggressive hybrid funds allocate equity and debt in 80:20 or 75:25 ratios. This means that investors gain from adequate allocations to equities and equity-related instruments, thus, helping them create wealth. The debt portion provides the much-needed cushion to infuse stability in returns even when the markets are underperforming.

There is greater downside protection, which means that the fund value does not go down to the same extent as the markets. This is possible as fund managers looking after these funds lessen equity exposure when market valuations are too high.

To date, there has been the least drawdown in the five funds of this category.

Name of the fundFive-year maximum drawdown (in %)
Canara Robeco Equity Hybrid Fund-25.77
Shriram Hybrid Equity Fund -25.84
Baroda BNP Paribas Aggressive Equity Hybrid Fund-26.52
SBI Equity Hybrid Fund -27.53
Franklin India Equity Hybrid Fund -27.93
Source: Morningstar Direct 

Many investors tend to find out the annual returns of every fund to check if the fund is worth their investment. However, verifying yearly returns is neither feasible nor mirrors the correct results as returns depend on myriad factors other than stock performance every year. This explains why looking at rolling returns over a particular timeframe makes more sense.

Listed below are aggressive hybrid funds with the best rolling returns over three and five years.

Name of the fund

Three-year rolling returns

(in %)

Five-year rolling returns

(in %)

ICICI Prudential Equity & Debt Fund14.3721.35
Canara Robeco Equity Hybrid Fund16.1512.76
Mirae Asset Hybrid15.7212.31
Bank of India Mid & Small Cap Equity & Debt Fund25.5011.93
SBI Equity Hybrid Fund14.0711.92
Source: MoneyControl

Should you invest in aggressive hybrid funds?

If you are looking to secure your future over a prolonged period and realize how an adequate combination of equities and debt can help you create a corpus, then investing in one such fund will not only help you create the much-desired corpus but also ensure the stability of returns in the face of uncertain market undulations.

Take, for example, if you had invested 10,000 per month in any of the funds mentioned in the below-mentioned table, you would have earned

Name of the fund

Monthly Investment 

(in Rs)

Five-year returns

(in %)

Accumulated corpus 

(in Rs)

ICICI Prudential Equity & Debt Fund10,00021.3510.76,009
Canara Robeco Equity Hybrid Fund10,00012.768,42,400
Mirae Asset Hybrid Fund10,00012.318,31,962
Bank of India Mid & Small Cap Equity & Debt Fund10,00011.938,23,271
SBI Equity Hybrid Fund10,00011.928,23,044

Consistency matters 

Look at the consistency score of these mutual funds. Most aggressive hybrid funds have performed consistently when compared to benchmark returns over a period. This persistence explains why many investors prefer to have at least one such fund in their investment portfolios

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First Published: 23 Oct 2022, 10:00 AM IST