Aggressive hybrid vs equity savings mutual funds: Both invest 65% in equities; risks, returns, key differences explained

Aggressive hybrid and equity savings funds are two categories of hybrid mutual funds that are required to invest at least 65% of their assets in equity. However, despite this common minimum allocation, the two categories differ significantly in their investment strategies, risk levels, and return potential.

While aggressive hybrid funds take higher exposure to equity markets to generate long-term growth, equity savings funds use a combination of equity, arbitrage and debt. Here's what each category means, how they differ in risk, and which one has delivered better returns.

According to SEBI's mutual fund categorisation norms, aggressive hybrid funds must invest:

• 65%-80% of their total assets in equity and equity-related instruments.
• 20%-35% in debt instruments.

These funds primarily invest in unhedged equities, making their performance more dependent on stock market movements. The debt allocation provides some cushion against equity market volatility.

Equity savings funds, on the other hand, follow a different investment strategy. Although they must maintain a minimum 65% allocation to equity and equity-related instruments, their portfolio also includes arbitrage and debt.

Their key allocation requirements include:

• A minimum 65% allocation to equity and equity-related instruments.
• Net long equity exposure of 15%-40% of total assets.
• A minimum 10% allocation to debt instruments.

Fund managers use arbitrage strategies by simultaneously buying a stock in the cash market and selling its futures contract to capture price differences.

The net long equity exposure of 15%-40% means only this portion of the portfolio is directly exposed to equity market movements. The remaining exposure is managed through hedged positions and debt investments.

Equity savings funds generally carry lower risk than aggressive hybrid funds because of their hedged equity and debt exposure.

According to Value Research list, almost all aggressive hybrid funds carry a ‘very high-risk’ label, with one scheme falling in the ‘high-risk’ category. Equity savings funds, meanwhile, range from ‘low to moderate’ to ‘moderately high risk’.

Their standard deviation, which measures how much returns fluctuate, also highlights this difference. Aggressive hybrid funds have a category average standard deviation of 12.14, compared with 5.06 for equity savings funds. A higher figure indicates greater volatility.

*Source: Value Research, Category Average CAGR as on 13 November 2026

Aggressive hybrid funds have outperformed equity savings funds over the 3, 5, and 10-year periods. However, equity savings funds have delivered better one-year returns.

The choice between the two categories ultimately depends on an investor's risk appetite and investment horizon. Aggressive hybrid funds may suit investors seeking higher long-term growth potential and willing to tolerate a higher level of risk.

Equity savings funds may appeal to investors looking for a combination of hedged equity, unhedged equity, arbitrage, and debt exposure. While arbitrage strategies help reduce directional equity market risk, they are not entirely risk-free. Returns can be affected by changes in price differences, liquidity, and market conditions.

Sheetal Goel is a Content Producer at Livemint, where she covers corporate developments, personal finance, business trends, markets, and SEBI-related updates. She focuses on simplifying complex financial concepts and presenting them in a clear, reader-friendly manner, thereby helping audiences better understand investment trends, personal finance, and market developments. Her writing focuses on making finance more accessible to everyday readers while maintaining clarity, accuracy, and relevance. <br><br> She holds a degree in Economics (Hons.) along with an MBA in Finance, which has helped her develop a strong foundation in financial analysis, market understanding, and business reporting. Before joining journalism, she worked with finance and broking firms, where she closely followed market developments, investment strategies, and evolving industry trends. This practical exposure strengthened her understanding of financial markets. She has also written content across multiple formats and platforms, including YouTube, LinkedIn, and Instagram. <br><br> Over time, she has developed expertise in covering market-linked stories, investor-focused topics, and regulatory updates in a simplified yet informative style. She also enjoys reading and listening to Hindi poetry, reflecting her appreciation for literature and creative expression beyond the world of markets and numbers.

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