Aggressive hybrid funds: An underrated star

Aggressive hybrid funds may not steal the limelight like their more popular cousins, such as dynamic or multi-asset allocation funds, but for investors seeking a predictable, low-maintenance approach to long-term wealth creation, these funds quietly deliver with their no-fuss, balanced asset allocation. These funds invest 65-80 per cent of the money in equity and 20-35 per cent in debt — giving you an equity-like growth potential with a debt cushion. Think of them as a pre-built, auto-rebalancing portfolio combining elements of a flexi-cap fund and a short-duration debt fund . For new investors, or those seeking long-term growth with less anxiety, aggressive hybrids are an excellent starting point. The aggressive hybrid fund may not match the market highs, but it softens the lows, giving you a smoother ride without missing the party. The auto-rebalancing feature and treatment as an equity-oriented fund offers tax advantage in comparison to a DIY (do it yourself) portfolio. In essence, it's a simplified version of an investor's portfolio across equity-debt, market capitalisation and credit quality. Highlights & trends Performance: In the last financial year, aggressive hybrid funds delivered 10 per cent annual returns, outpacing the BSE 500 TRI's 7 per cent. The defensive nature of aggressive hybrid funds has been evident during various market downturns. In the seven worst market falls in a calendar month over the last decade, aggressive hybrid funds have fared better than flexi-cap funds. Even in the recent market correction, between September 26, 2024, and March 25, 2025, these funds fell by around 8 per cent, while flexi-cap funds dropped by 13 per cent on average, thanks to the cushion provided by their debt allocation. Interestingly, when compared to large-cap funds, aggressive hybrid funds delivered only 0.5 per cent lower returns on a five-year SIP over the last five years, which is good considering the allocation to debt. Net flows: Investor interest in aggressive hybrid funds has improved, with net inflows of over Rs 4,700 crore in 2024, compared to net outflows of nearly Rs 800 crore in 2023. However, this remains relatively small, representing less than 2 per cent of the category's total assets. In comparison, dynamic asset allocation and multi-asset allocation funds garnered much larger net inflows — Rs 20,000 crore and Rs 40,000 crore, respectively, highlighting the greater investor preference for these categories. Portfolio stance: Many funds have turned cautious. Of the 29 active aggressive hybrid funds (excluding solution-oriented ones), 12 funds currently maintain equity allocations below 70 per cent. Interestingly, only three funds have opted for a conservative approach in their mid- and small-cap allocation, keeping it below 20 per cent. On the debt side, the duration has been inching upwards over the last year. Nearly three-fourths of the funds are now running longer-duration debt portfolios, anticipating further rate cuts. Category snapshot Parameters 2025 No. of aggressive hybrid fund 44 Assets Rs 2.29 lakh crore Asset-weighted expense 0.88 Asset-weighted category returns -6.49% Average return of top quartile fund -6.21% Average return of bottom quartile fund -12.5% Average mid & small-cap exposure 33.62% Three most popular funds ICICI, Edelweiss, Sundaram Three least popular funds SBI, HDFC, ABSL Average YTM 7.28% Average duration 4.54 years Note: Returns as of February 28, 2025. Expense ratio and portfolio level attributes as of January 31, 2025. Popular funds based on net flows up to February 28, 2025.  For you: Our handpicked aggressive hybrid funds Change in recommendation Funds moved to Hold: Bank of India Mid & Small Cap Equity & Debt , Invesco India Aggressive Hybrid , UTI Aggressive Hybrid Funds at a glance Funds Rating 5-year SIP returns (%) Alpha Fund risk grade Expense ratio (%) Net assets (Cr) SBI Equity Hybrid Fund 2 14.97 1.33 Average 0.81 68,440 ICICI Prudential Equity & Debt Fund 5 22.69 6.85 Below Average 1.02 38,507 HDFC Hybrid Equity Fund 3 15.05 2.04 Below Average 1.06 22,131 Canara Robeco Equity Hybrid Fund 3 14.64 1.34 Below Average 0.61 9,841 DSP Aggressive Hybrid Fund 3 17.19 3.89 Average 0.71 9,795 HDFC Children's Fund 5