Mutual funds are a popular investment option for many investors, but when it comes to returns, what matters most to the end-user is the returns over the holding period. In this article, we will assess the performance of certain hybrid fund categories in a de-jargonised manner, making it easy for the investor to understand the nuances.
Fund Categories
We have taken three hybrid fund categories that have equity exposure and will examine their performance in the most recent phase of the market’s decline. The Nifty 50 index peaked on 26 September 2024 – that’s the starting point of the assessment. To compare the performance of these three categories, we have taken two pure-play equity funds – the comparison will give us the perspective. The three hybrid fund categories are:
- Balanced Advantage Funds (BAFs)
- Aggressive Hybrid Funds
- Equity Savings Funds
These fund categories have varying levels of equity exposure, which gives an idea of the correlation with the equity market. For instance, BAFs have long exposure to equity, usually more than 65 percent of the portfolio, while aggressive hybrid funds have exposure to equity in the range of 65 to 80 percent.
Performance Analysis
To gauge the performance of these funds, data has been taken for the period from 26 September to 28 March 2025.
| Fund Category | Return (Negative) |
|---|---|
| BAFs (Regular Plan) | 6.17% |
| Aggressive Hybrid Funds (Regular Plan) | 8.58% |
| Equity Savings Funds (Regular Plan) | 1.24% |
| Large Cap Funds (Regular Plan) | 11.33% |
| Small Cap Funds (Regular Plan) | 16.06% |
We observed that when the equity market tanks, pure-play equity funds give commensurate returns, as per the segment of exposure, i.e. large cap or small cap. Hybrid funds, with various combinations of equity/hedged equity/debt instruments, have done relatively better.
Long-Term Performance
Over the longer term, pure-play equity funds fared better. Equity funds, transient volatility aside, have delivered returns over an adequate holding period. Hybrid funds reduce the impact during market volatility but end up yielding little less over the long term.
Picking the Right Funds
There are 11 equity fund categories, apart from passive funds i.e. index funds/ETFs, and six hybrid fund categories. You can pick and choose the appropriate ones as per your risk appetite. You will have to allocate to multiple categories in a ratio that suits you. In conclusion, understanding the performance of hybrid funds is crucial for investors to make informed decisions. By analyzing the performance of these funds, we can see that while they offer some benefits over pure-play equity funds, they may not necessarily yield superior returns over the long term. However, they can be a useful tool for investors who want to reduce their exposure to market volatility. For investors who are new to mutual funds or are looking to diversify their portfolios, this analysis can be a valuable resource.
The analysis concludes that investors should consider the following:
• Hybrid funds can offer some benefits over pure-play equity funds, but they may not necessarily yield superior returns over the long term. • Investors should allocate to multiple categories in a ratio that suits their risk appetite. • Pure-play equity funds are suitable for investors who are willing to take on higher risks in pursuit of superior returns. • Hybrid funds can be a useful tool for investors who want to reduce their exposure to market volatility.
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