3 Best Aggressive Hybrid Funds for 2024 – Top Performing Aggressive Hybrid Mutual Funds in India

March 27, 2024 Mutual Fund

Aggressive Hybrid Funds are hybrid mutual funds that invest predominantly in equities along with meaningful exposure to debt securities to reduce volatility. This approach offers investors the benefit of the upside potential of equity investment at a lower risk as compared to pure equity funds.

In this article, we bring you the 3 Best Aggressive Hybrid Funds for 2024. But first, here are some basic details about the category.

What are Aggressive Hybrid Mutual Funds?

Aggressive Hybrid Funds, also known as Equity Hybrid Funds, are open-ended hybrid mutual fund schemes that invest in both equity and debt. The equity allocation in this category of funds ranges between 65%-80% of the total assets, while debt instruments have an exposure of 20%-35% in the portfolio.

A combination of these asset classes offers diversification as equity and debt share a low correlation. The debt cushion helps the schemes to minimise the downside risk during uncertain and bearish market phases. This makes Aggressive Hybrid Funds less risky compared to investments in pure equity funds.

Examples of Aggressive Hybrid Funds in India

The securities quoted are for illustration only and are not recommendatory.
AUM data as of February 29, 2024
(Source: ACE MF, data collated by PersonalFN) 

Aggressive Hybrid Funds can invest the equity portion across the market capitalisation and sectors, depending on the investment mandate and strategy of the scheme. In terms of debt investment, the fund managers have the flexibility to invest across securities carrying different maturities and credit profiles.

The fund managers of Aggressive Hybrid Funds regularly rebalance the portfolio to maintain the mandated equity and debt allocation so that the investors do not have to time the market to implement asset allocation strategy.

[Read:  Asset Allocation: Hocus-Pocus Or The Essence Of Successful Investing?]

Top holdings of Aggressive Hybrid Funds

The securities quoted are for illustration only and are not recommendatory.
AUM data as of February 29, 2024
(Source: ACE MF, data collated by PersonalFN) 

Balanced Advantage Funds vs Aggressive Hybrid Funds: Know the difference

Aggressive Hybrid Funds follow a static asset allocation model, maintaining a minimum exposure of 65% in equities and 20% in debt at all times, regardless of the market conditions. Thus, Aggressive Hybrid Funds can benefit from the long-term growth potential of equities, while also generating a steady income from debt.

On the other hand, Balanced Advantage Funds have the flexibility to shift exposure between equity and debt based on market conditions. Being dynamically managed, the asset allocation in the case of Balanced Advantage Funds can fluctuate between 0% to 100% in equity or debt at the fund manager’s discretion.

If a Balanced Advantage Fund is of the view that equity markets have turned expensive, it will trim the equity exposure in the portfolio, while simultaneously increasing its allocation in the debt segment. It will reinvest in equities when the valuations are reasonable. Thus, Balanced Advantage Funds have much leeway in the construction of the portfolio and therefore, they have the potential to perform well during both upside and downside market conditions.

That said, going by experience, most Balanced Advantage Funds usually tend to maintain a minimum of 65% exposure to equities to enjoy the favourable tax status of an equity-oriented fund. As a result, most schemes in the category are not truly balanced in nature.

What are the advantages of investing in Aggressive Hybrid Mutual Funds?

Aggressive Hybrid Funds offer various advantages to its investors. Investing in Aggressive Hybrid Funds offers diversification as investors benefit from the high return potential of equity as well as the stability of debt instruments through a single fund.

Aggressive Hybrid Funds help limit the downside risk

Past performance is not an indicator for future returns.
Data as of March 21, 2024
(Source: ACE MF, data collated by PersonalFN) 

The allocation of two asset classes in the portfolio also makes the crucial task of monitoring the performance of the portfolio easier, as it eliminates the need of buying multiple funds for exposure to different asset classes.

Finally, while Aggressive Hybrid Funds have to adhere to the investment threshold prescribed by SEBI, they have ample scope to rebalance their portfolio to benefit from dynamic market conditions. So, when the markets are expected to rise, Aggressive Hybrid Funds can hike their equity exposure. Similarly, in the case of an overheated equity market, these funds can reduce their equity exposure to an extent and invest the proceeds in debt instruments.

What are the risks involved in Aggressive Hybrid Mutual Fund investment?

Since Aggressive Hybrid Funds carry a significant equity component, they are vulnerable to market fluctuations. In case of a market correction, Aggressive Hybrid Funds may witness a fall in their net asset value. However, the extent of the decline in value would likely be lower than that of pure equity funds.

Moreover, due to the presence of a significant debt portion in the portfolio, these funds may underperform pure equity funds during market uptrends. It is also noteworthy that the lower equity component in Aggressive Hybrid Funds can result in lower returns than pure equity funds.

Does it make sense to invest in Aggressive Hybrid Mutual Funds in 2024?

The equity markets led by the mid and small-cap segments have seen impressive growth over the last few years. However, concerns arise over stretched valuations and the likelihood of a correction following the notable rally, particularly in small-cap stocks.

This surge has made investors wary, leading some to contemplate cashing out to secure profits. Expectations suggest continued volatility in the short term. Hence, investors are advised to be cautious. They can consider shifting focus to high-quality and well-managed funds, exhibiting lower volatility and offering the potential for long-term superior growth.

Aggressive Hybrid Fund is one such category and therefore, it can be a worthy addition to investors’ portfolio.

These funds are suitable for investors with a moderately-high risk tolerance seeking long-term capital appreciation but who prefer avoiding high volatility.

How are Aggressive Hybrid Mutual Funds taxed?

Aggressive Hybrid Funds are equity-oriented mutual funds and hence they follow equity taxation. The holding period for Aggressive Hybrid Funds from a tax perspective is 12 months. So, if investors sell their Aggressive Hybrid Fund units before 12 months, the gains are subject to short-term capital gains (STCG) tax of 15%.

On the other hand, if they sell their Aggressive Hybrid Fund units after completing one year, the gains are subject to long-term capital gains tax (LTCG) of 10%, but only if the gains exceed Rs 1 Lakh in a financial year.

[Read:  Want to Know How Hybrid Funds are Taxed? Read This]

Which are the best Aggressive Hybrid Funds for 2024?

Best Aggressive Hybrid Funds for 2024

Past performance is not an indicator for future returns
Data as of March 21, 2024. Direct plan – Growth option considered; Returns are on a rolling basis and in %
(Source: ACE MF, data collated by PersonalFN) 

Let us now take a look at the 3 best Aggressive Hybrid Funds for 2024 shortlisted based on 3-year rolling returns.

Best Aggressive Hybrid Fund for 2024 #1: Quant Absolute Fund

Launched in March 2001, Quant Absolute Fund is an actively managed scheme in the Aggressive Hybrid Fund category that follows an active investment strategy. The fund has registered extraordinary performance in recent years and currently tops the returns chart over longer time frames. More importantly, Quant Midcap Fund has done well in terms of risk-adjusted returns.

Fund Snapshot – Quant Absolute Fund

Past performance is not an indicator of future returns. The securities quoted are for illustration only and are not recommendatory.
Portfolio data as of February 29, 2024
Returns and NAV data as of March 21, 2024. Regular Plan – Growth Option considered
(Source: ACE MF, data collated by PersonalFN) 

Quant Absolute Fund invests predominantly in equities with moderate exposure to debt. The fund is agile in its approach to shift allocation between equity, debt, and cash depending on the market conditions, though it maintains an equity-oriented portfolio. Following a momentum-driven strategy, Quant Absolute Fund holds most of its stocks with a short-term view. Accordingly, it has recorded a higher churn rate of around 100% to 300% in the last one year.

In terms of debt portion, Quant Absolute Fund maintains a high-quality portfolio, investing predominantly in government securities and treasury bills. Despite its aggressive strategies, Quant Absolute Fund has proved its ability to reward investors with superior gains over the long run.

Best Aggressive Hybrid Fund for 2024 #2: ICICI Pru Equity & Debt Fund

Launched in November 1999, ICICI Prudential Equity & Debt Fund has been in existence for nearly 25 years. Since its inception, the fund has shown superior performance, generating returns at around 15.5% CAGR. This has resulted in significant outperformance of ICICI Prudential Equity & Debt Fund over the benchmark and the category average over longer time frames. Moreover, the fund’s risk-adjusted returns are currently among the best in the category and well ahead of the benchmark.

Fund Snapshot – ICICI Pru Equity & Debt Fund

Past performance is not an indicator of future returns. The securities quoted are for illustration only and are not recommendatory.
Portfolio data as of February 29, 2024
Returns and NAV data as of March 21, 2024. Regular Plan – Growth Option considered
(Source: ACE MF, data collated by PersonalFN) 

In terms of equity portfolio, the fund typically maintains a large-cap bias. It follows a combination of the top-down and bottom-up approaches to pick stocks and holds most of its stocks with a long-term view.

The fund’s debt portfolio primarily consists of highly liquid sovereign-rated G-Secs, supplemented by some allocation to moderate-rated corporate debt instruments, which can enhance the returns.

ICICI Pru Equity & Debt Fund is led by the highly experienced fund manager, Mr Sankaran Naren, under whose supervision the fund has built a strong history of outperformance in various market conditions.

Click here to read our detailed coverage on the features and performance of ICICI Pru Equity & Debt Fund.

Best Aggressive Hybrid Fund for 2024 #3: Bank of India Mid & Small Cap Equity & Debt Fund

Launched in July 2016, BOI Mid & Small Cap Equity & Debt Fund is an aggressively managed scheme in the Aggressive Hybrid Fund category. The fund endeavours to offer higher returns than traditional balanced funds and with lower volatility as compared to pure mid & small-cap equity funds.

With high exposure to stocks in the lower market cap, BOI Mid & Small Cap Equity & Debt Fund tends to underperform during bearish market conditions due to higher downside risk associated with mid and small-cap stocks. However, the fund has often found a place among the top performers in the category during bullish phases. Thus, the fund can potentially reward its investors with reasonable risk-adjusted returns over complete market cycles.

Fund Snapshot – BOI Mid & Small Cap Equity & Debt Fund

Past performance is not an indicator of future returns. The securities quoted are for illustration only and are not recommendatory.
Portfolio data as of February 29, 2024
Returns and NAV data as of March 21, 2024. Regular Plan – Growth Option considered
(Source: ACE MF, data collated by PersonalFN) 

BOI Mid & Small Cap Equity & Debt Fund invests about 45% of its assets in mid caps and about 25% in small caps, with minor or no allocation to large caps. This makes it riskier than other schemes in the category. Meanwhile, its debt portfolio comprises high quality AAA and sovereign-rated instruments. Despite its aggressive strategies, the fund has managed to reward its investors well for the level of risk taken.

This completes our list of the 3 best Aggressive Hybrid Mutual Funds for 2024.

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Note: This write-up is for information purpose and does not constitute any kind of investment advice or a recommendation to Buy / Hold / Sell a fund. Returns mentioned herein are in no way a guarantee or promise of future returns. Mutual Fund Investments are subject to market risks, read all scheme-related documents carefully before investing. PersonalFN does not have any monetary interest for this article.

This article first appeared on PersonalFN here