Aggressive hybrid funds appeal to two categories of investors: newcomers to equity investing who want a gentler introduction to stock market participation, and those approaching retirement who are looking to transition their portfolios away from higher-risk investments toward more conservative options.
One of the consistent performers in this segment is the ICICI Prudential Equity & Debt Fund (IEDF). Formerly known as the ICICI Prudential Balanced Fund, it stands out as one of the oldest hybrid funds in the Indian mutual fund industry. Launched in November 1999, the fund has delivered an impressive compounded annualised return of 16 per cent since inception.
As per SEBI’s mandate for aggressive hybrid funds, IEDF maintains between 65 and 80 per cent of its assets in equities, with the remaining portion invested in debt instruments. It follows a quantitative investment model, ensuring disciplined allocation between equity and debt, based on key valuation metrics and macroeconomic indicators. Over the past five years, equity exposure has remained between 65 and 75 per cent, depending on market conditions.
Equity strategy
In equities, the fund employs value investing by purchasing fundamentally strong companies at low valuations. It also adopts a contrarian approach investing in out-of-favour sectors when others are selling. Additionally, it focuses on thematic investing by identifying sectors that ride on macro changes.
The fund’s sector allocation changes dynamically with market cycles. From 2018 to 2020, it took a contrarian stance by investing significantly in sectors like telecom, power, metals, and oil & gas, with each accounting for 10–15 per cent of the portfolio. These allocations contributed meaningfully to returns in the following years. At present, the fund leans towards sectors such as power, telecom, pharmaceuticals, and banking, while remaining underweight on IT and FMCG. In the small-cap segment, it selectively picks hotel and construction stocks through a bottom-up approach.
The fund has demonstrated a clear preference for large-cap stocks, maintaining an average allocation of 61 per cent to large-caps, with mid-caps and small-caps receiving around 4.5 per cent and 4 per cent respectively over the last five years.
Debt strategy
The fund actively manages its debt allocation in line with its mandate to maintain a minimum 20 per cent exposure to debt instruments. It adopts a flexible approach, balancing short and long-term instruments while dynamically shifting between accrual and duration strategies based on the interest rate outlook. In rising rate scenarios, the fund favours higher carry through increased exposure to non-AAA papers, which offer attractive yields and spreads. For instance, during the rising rate period of 2020–2021, non-AAA allocation peaked at 24 per cent. When rate cuts are expected, the fund pivots to government securities to capitalise on duration gains. It increased AAA and G-sec holdings to 17 per cent in 2024–2025. Currently, these stand at around 15 per cent, while non-AAA exposure has declined to 5 per cent. The latest portfolio includes 0.3 per cent in ‘A’-rated Yes Bank and ‘AA’-rated names like Avanse, Indostar, JM Financial, and Macrotech.
Performance
IEDF’s performance over the 2020–2025 period has been notable, driven by its valuation-conscious investing and counter-cyclical positioning. It consistently ranked in the top two quartiles among peers for most time periods over the last seven years. Notably, it delivered top-two-quartile one-year returns in 80 per cent of rolling periods during this timeframe.
A look at five-year rolling returns over the last 10 years reveals that the fund posted an average annual return of 16.4 per cent, significantly outperforming the category average of 12.5 per cent. The five-year return range has varied between 5.8 per cent and 30 per cent, indicating both resilience and potential upside.
From a cost perspective, the regular plan of the fund has an expense ratio of 1.57 per cent, lower than the category average of 2 per cent. The direct plan, however, has an expense ratio of 0.97 per cent, slightly higher than the category average of 0.82 per cent.
Published on July 19, 2025
