Hybrid funds shine with 17% five-year returns as markets stay choppy

On average, the category has generated returns of nearly 7 per cent over the past year, 16.5 per cent over two years, and more than 17 per cent over five years, industry data showed.

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Aggressive hybrid mutual funds are seeing a surge in investor interest, with the category’s asset base rising 13 per cent year-on-year to touch ₹2.5 lakh crore in October 2025, according to data from the Association of Mutual Funds in India (AMFI). The number of investor folios also went up, increasing by 4 lakh over the past year to 60.44 lakh.

 

This expansion comes at a time when the benchmark Nifty has been stuck in a year-long corrective phase, marked by bouts of heightened volatility. The unsettled market environment has prompted many investors to shift towards hybrid funds—products designed to blend the growth potential of equities with the stability of debt.

 

Industry experts said this shift reflects a broader behavioural trend: investors seeking moderate risk, smoother returns, and automatic asset allocation in uncertain markets.

 

First, What Are Aggressive Hybrid Funds?

 

Hybrid funds invest in a mix of equity and debt, offering a more balanced risk-reward profile than pure equity schemes.

 

Aggressive hybrid funds, specifically, must invest:

 

• 65–80% in equities
• 20–35% in debt

 

under SEBI’s categorisation norms.

 

This structure allows the fund to:

 

• Participate meaningfully in equity market rallies
• Provide stability during market corrections
• Offer lower volatility than pure equity funds

 

In practice, the category today averages:

 

• 72% equity
• 21% debt

 

This automated allocation helps long-term investors but also means surrendering control over the exact equity-debt mix to the fund manager.

 

Why Investors Are Rushing Toward Hybrid Funds

 

The appeal of these funds has grown significantly in the last year, as a jittery equity market pushed investors to seek consistent, less volatile returns.

 

According to Shantanu Awasthi, Co-Founder & CEO, Mavenark Wealth, “These funds benefit from both sides — equity and debt. In volatile equity years, the debt portion protects returns; when markets move up, they capture the upside. They suit investors with medium or lower risk appetite.”

 

This dual advantage has drawn new investors while retaining existing ones, fueling a steady rise in assets.

 

Strong Performance Backing the Trend

 

Aggressive hybrid funds have posted solid returns across timeframes:

 

1-year: 7%

 

2-year: 16.5%

 

5-year: >17%

 

More importantly, the category has outperformed the benchmark Nifty 50 Hybrid Composite Debt 65:35 Index over two- and five-year periods.

 

Top-performing schemes

 

ICICI Prudential Equity & Debt Fund:

 

19.6% CAGR (2 years)

 

24.7% CAGR (5 years) — category-leading

 

Mahindra Manulife Aggressive Hybrid Fund:

 

19.3% (2 years)

 

20.4% (5 years)

 

Bandhan, Edelweiss, Invesco India aggressive hybrid funds:

 

18–19% (2 years)

 

16.5–19.9% (5 years)

 

In comparison, the benchmark delivered just 13.1%.

 

Where These Funds Invest — And Why It Matters

 

Despite the SEBI-mandated range, most aggressive hybrid funds today run similar portfolios.

 

Feroze Azeez, Joint CEO, Anand Rathi Wealth, points out: “Nearly 75 per cent of the equity portion in most aggressive hybrid funds is in large caps. This may not suit investors looking for a more diversified spread across market caps.”

 

Implications

 

• The equity portfolio tends to be more stable because of its large-cap tilt.
• Investors seeking mid-cap or small-cap exposure may find hybrid funds too conservative.
• The debt allocation helps cushion downsides during market slumps.

 

Category Growth Reflects a Broader Investing Shift

 

AMFI data shows the category’s assets rose from:

 

₹2.21 lakh crore (Oct 2024) → ₹2.5 lakh crore (Oct 2025)

13% annual growth

 

This, along with a steady rise in folios, signals increasing confidence in hybrid structures.

 

Advisors say investors who are uncomfortable managing their own asset allocation find hybrid funds particularly appealing.

 

Who Should Invest in Aggressive Hybrid Funds?

 

Experts recommend these funds for:

 

• First-time equity investors seeking a smoother entry
• Moderate-risk investors wanting lower volatility
• Long-term investors who prefer a professionally managed mix of equity & debt
• Retirees or professionals seeking monthly income options, which some schemes now provide

 

Funds like ICICI Prudential Equity & Debt Fund and Mahindra Manulife Aggressive Hybrid Fund have consistently outperformed over multiple cycles, making them popular choices.

 

The availability of monthly dividend payout options—especially relevant after recent tax cuts—adds another layer of appeal for income-seeking investors.

 

Other schemes such as Bandhan, Edelweiss, and Invesco India Aggressive Hybrid Funds have also posted double-digit returns, ranging between 18-19 per cent over 2 years and 16.5-19.9 per cent over 5 years. In comparison, the benchmark has generated a much lower 13.1 per cent.

 

Market experts believe that investing in a well-managed aggressive hybrid fund, particularly schemes such as ICICI Prudential Equity & Debt Fund and Mahindra Manulife Aggressive Hybrid Fund, can offer meaningful upside and put investors ahead on the path to long-term wealth creation. 

 

Additionally, these schemes offer a monthly dividend payout option, which provides an added advantage for investors seeking regular income, especially those who stand to benefit from recent tax cuts, they added.  With inputs from PTI