Due to the ongoing market volatility and the increasing prevalence of uncertainty, investors are looking for investment options that strike a balance between stability and growth. In these volatile market conditions, aggressive hybrid funds have emerged as a preferred choice for investors who are aiming to navigate volatility while staying invested in the market’s growth story.
In this blog, we will explore the reasons that contribute to aggressive hybrid funds’ attractiveness in volatile markets.
What Are Aggressive Hybrid Funds?
Mutual funds that offer a mix of debt and equity investments are known as aggressive hybrid funds. As per SEBI guidelines, these funds invest 65-80% of their assets in equities and the rest 20-35% in fixed-income securities such as bonds, government securities, and money market securities.
This dual allocation enables them to provide benefits of equity funds like growth prospects with a safety net of debt funds. Aggressive hybrid funds, such as the Edelweiss Aggressive Hybrid Fund have delivered significant returns of 11.29% in the past 3 months.
The appeal of aggressive hybrid funds lies in their ability to provide a cushion against market downturns while still capturing the upside during bull markets.
According to the latest data, the asset base of aggressive hybrid funds rose 12% year-on-year to ₹2.26 lakh crore in April 2025, with the investor base expanding by 3.5 lakh folios to nearly 58 lakh, highlighting their growing popularity in the Indian stock market. This surge reflects a behavioral shift among retail investors, who are now prioritizing balanced and tax-efficient options over high-risk derivatives.
Why Are They a “Go-To Choice” in Volatile Markets?
The balanced nature of Aggressive Hybrid Funds makes them popular among investors navigating uncertain or volatile market conditions for several key reasons listed below:
Built-in Diversification
Diversification across asset classes, debt, and equity is a feature of these funds. This indicates that the fund is not entirely dependent on one asset class’s success. Debt may do well during a volatile period of the equities market, and vice versa. Professional fund managers manage this diversification, saving investors the trouble of making separate investments in several asset groups.
Risk Mitigation
During corrections, pure equity funds may have large losses. Aggressive hybrid funds allow investors to benefit from both by allocating 65–80% of their investments to equities and the rest of the capital to debt instruments. Investors profit from the growth potential of equities in a bull market, while the debt component acts as a buffer during market downturns.
Active Asset Allocation
Dynamic asset allocation is an approach commonly used by aggressive hybrid funds. This means fund managers have the flexibility to slightly adjust the equity and debt proportions based on their market outlook.
For example, in an overheated equity market, they might slightly reduce equity exposure and increase debt, and vice versa when equities become attractive after a correction. This active management adds significant value during volatile periods.
Tax Efficiency
In India, Aggressive Hybrid Funds are treated as equity-oriented funds for taxation purposes, provided their equity allocation remains above 65%. This means they qualify for favorable equity taxation rules, including long-term capital gains tax of 12.5% (after ₹1.25 lakh exemption) after one year, and short-term capital gains taxed at 20%. This is a significant advantage over debt funds for long-term investors.
Professional Management
For investors who want equity exposure but lack the time or expertise to manage a diversified portfolio themselves, aggressive hybrid funds offer a simple, single-fund solution. By investing in aggressive hybrid funds, investors get the benefits of both equity and debt funds with professional management rolled into one.
Conclusion
Aggressive hybrid funds offer a compelling mix of growth and stability, making them a go-to choice for investors navigating volatile markets. Their dual asset allocation, diversification, professional management, and tax advantages position them as a cornerstone for balanced, long-term wealth creation.
Whether you’re a seasoned investor or just starting, considering aggressive hybrid funds could be a smart move in today’s unpredictable market environment.