Double-Edged Growth: Unlocking Smart Returns With Aggressive Hybrid Funds

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In a market shaped by uncertainty and shifting investor sentiment, aggressive hybrid mutual funds are gaining renewed attention. These funds blend the growth potential of equities with the stability of debt instruments, offering a balanced approach for those seeking higher returns without diving fully into market volatility. With recent performance data and expert insights, this category is proving to be a smart bet for medium-term wealth creation.

Here’s how they work, why they’re trending, and how investors can make the most of them.

Key takeaways from the current market performance

- Aggressive hybrid funds allocate at least 65 percent to equities, with the remainder in debt instruments
- This structure allows investors to benefit from equity rallies while softening the impact of market downturns
- Tax treatment is favorable, as these funds qualify as equity-oriented schemes under Indian tax laws
- Top performers in 2025 include ICICI Prudential Equity & Debt Fund (21.18% annual return), Bank of India Mid & Small Cap Equity & Debt Fund (19.64%), and JM Aggressive Hybrid Fund (19.45%)

Why asset allocation is the real game changer

Aggressive hybrid funds simplify portfolio construction by combining equity and debt in one product. This dynamic allocation helps investors stay invested through market cycles without constantly rebalancing their portfolios.

- In bullish phases, the equity portion drives growth
- In bearish phases, the debt component cushions losses
- Fund managers rebalance internally, maintaining the target mix and reducing investor stress

The power of rebalancing in volatile markets

Rebalancing is a built-in feature of aggressive hybrid funds. As equity markets rise or fall, the fund automatically adjusts its asset mix to maintain the desired allocation.

This mechanism helps:
- Lock in profits during market highs
- Buy undervalued assets during dips
- Avoid emotional decision-making and market timing errors

SIP versus lump sum: which strategy works better

While lump sum investments can deliver strong returns in a rising market, they carry timing risks. For example, a Rs 1 lakh lump sum invested before the March 2020 crash would have dropped significantly within months.

Systematic Investment Plans (SIPs) offer a more resilient approach:
- Spread investments over time
- Reduce exposure to market volatility
- Enable rupee-cost averaging, buying more units when prices are low

SIPs are especially recommended for new investors or those with moderate risk appetite.

Top-performing aggressive hybrid funds in 2025

Here are some standout schemes delivering consistent returns:

- ICICI Prudential Equity & Debt Fund: 21.18% annual return, ₹44,605 crore fund size
- Bank of India Mid & Small Cap Equity & Debt Fund: 19.64%, ₹1,258 crore
- JM Aggressive Hybrid Fund: 19.45%, ₹841 crore
- Edelweiss Aggressive Hybrid Fund: 18.94%, ₹2,994 crore
- Mahindra Manulife Aggressive Hybrid Fund: 18.73%, ₹1,811 crore

These funds have outperformed many pure equity schemes while offering lower volatility, making them ideal for a 3 to 5 year investment horizon.

Tax efficiency makes them even more attractive

Aggressive hybrid funds qualify as equity-oriented schemes under Indian tax laws. This means:
- Long-term capital gains (LTCG) above ₹1 lakh are taxed at 10 percent
- Short-term capital gains (STCG) are taxed at 15 percent

Compared to debt mutual funds, which are taxed at slab rates, this gives aggressive hybrid funds a clear edge for long-term investors.

Who should consider investing in these funds

Aggressive hybrid funds are ideal for:
- First-time equity investors looking for lower volatility
- Investors with a medium-term horizon of 3 to 5 years
- Those seeking a single product that handles asset allocation and rebalancing

By combining growth potential with risk control, these funds offer a smart, balanced path to wealth creation.

Sources: MSN Money, LiveMint, ET Money, Value Research Online