Indian equity markets have remained volatile over the past 15–18 months, offering little directional clarity for investors. For those with a moderate risk appetite and concerns around this volatility, balanced mutual fund categories can offer a more measured approach. Aggressive hybrid funds, in particular, allocate 65 to 80 per cent to equities, with the remainder in debt instruments, allowing investors to participate in market upswings while cushioning downside during corrections.

Kotak Aggressive Hybrid Fund (KAHF) stands out as a consistently better-performing fund in this category. With a track record of over 27 years, it has delivered a compounded annual growth rate (CAGR) of 14 per cent since inception.

Equity-heavy portfolio

At the portfolio construction level, the fund maintains a relatively high equity allocation. Over the past three years, equity exposure has ranged between 69 and 80 per cent, and currently stands close to the upper end of that band.

On the equity side, stock selection is anchored in a few core principles. The fund prioritises strong cash-generating businesses that can fund growth internally rather than relying on excessive debt or equity dilution. Return on capital is expected to exceed the cost of capital, typically above 12–15 per cent in most cases. It also evaluates management discipline in capital allocation and avoids companies diversifying into unrelated businesses. Alongside these factors, the focus remains on companies with visible and sustainable earnings growth over the next three to four years.

Within equities, around 45 per cent is invested in large-cap companies, while 30–35 per cent is allocated to mid- and small-cap stocks. This mix has remained broadly consistent over time. However, the relatively higher allocation to mid- and small-cap stocks may add to the portfolio’s risk.

Sectoral preferences

The fund’s sector positioning reflects a tilt towards structural growth themes rather than cyclical or commodity-driven segments. Within consumption, it prefers emerging segments such as quick commerce over traditional FMCG businesses, which are currently facing margin pressures and slower growth. Consumer durables is another key overweight, with exposure to segments such as air conditioners and electronics manufacturing, both benefiting from rising discretionary demand and formalisation.

Healthcare, particularly hospitals, is another preferred segment. The fund manager views this as a long-term structural opportunity, driven by rising healthcare demand, under-penetration of organised hospital infrastructure and increasing reliance on private providers. The portfolio includes names such as Fortis Healthcare and Max Healthcare Institute.

On the IT sector, the fund maintains a neutral stance despite prevailing negative sentiment around AI. It sees valuations as attractive, with many IT stocks trading at 20–22 times earnings compared to higher multiples in the broader market, along with dividend yields of 3 to 4 per cent. The fund manager believes concerns around AI are overstated, as companies will continue to benefit from demand for cloud migration, data management and digital transformation. The fund currently has about 7 per cent exposure to IT, with key holdings including Infosys, Mphasis and Oracle Financial Services Software.

The fund remains broadly neutral on sectors such as banking, financials, telecom and power, while staying underweight on commodities such as oil and gas and metals.

Debt portion

On the fixed income side, the fund follows a blend of accrual and duration strategies. Over the past five years, its Macaulay duration has ranged between 2 and 10 years. Currently, the portfolio holds about 10 per cent in government securities, 2 per cent in corporate debt and 4 per cent in money market instruments.

The fund largely avoids credit risk. Its exposure to lower-rated instruments is minimal, with only about 1 per cent invested in AA-rated bonds issued by Andhra Pradesh Beverages Corporation and Telangana State Industrial Infrastructure Corporation.

Performance

The fund’s performance has been notable. Five-year rolling returns, calculated over the past seven years, show a CAGR of 18 per cent compared with the category average of 16 per cent. During this period, returns ranged from 11.7 per cent to 25 per cent, with nearly 90 per cent of observations delivering returns above 15 per cent.

On costs, the regular plan’s expense ratio stands at 1.73 per cent, below the peer average of 2 per cent, while the direct plan’s expense ratio is 0.47 per cent, also lower than the category average of 0.8 per cent.

Overall, the fund is suited for investors with medium-term horizons of at least five years. Given the current volatile market conditions, a systematic investment approach may be more appropriate.

Published on March 21, 2026