Conservative hybrid funds cater to investors with a low to moderate risk profile who seek limited exposure to equities alongside a debt-oriented portfolio. Typically, 75–90 per cent of the corpus goes into debt and 10–25 per cent into equities. The high debt component provides stability and regular income, while the equity portion offers potential for growth.
ICICI Prudential Regular Savings Fund (IRSF) belongs to this category and has delivered debt-plus returns consistently over the long term. Over the last 10 years, it has generated a compounded annual growth rate (CAGR) of 9.5 per cent. The fund has kept its equity allocation between 15–24 per cent over the past five years, adjusting flexibly to market conditions, while the remaining share is invested in debt instruments.
Equity strategy
The fund’s equity strategy blends top-down macroeconomic analysis with bottom-up contrarian stock picking. The manager tracks economic and sectoral cycles to identify broad investment themes. The bottom-up approach, meanwhile, rests on mean reversion—buying fundamentally strong businesses facing temporary headwinds, aiming for recovery-driven upside while ensuring a margin of safety.
Currently, among sectors, life insurance carries a significant overweight, while utilities such as power and telecom also feature prominently. Consumer discretionary, capital goods, and market-facing stocks are underweighted, given their stretched valuations relative to fundamentals.
In terms of market-cap bias, nearly two-thirds of the equity allocation sits in large-caps, with the balance in mid- and small-caps. Presently, around 13 per cent of total assets are in large-caps, 3 per cent in mid-caps, and 6 per cent in small-caps.
Debt Portfolio
The debt side is managed dynamically. Allocations include government securities for interest rate plays and liquidity, AAA-rated corporate debt for stability, and selective exposure to non-AAA papers (A-rated and above) to enhance yield.
The portfolio duration has been kept moderate, with a Macaulay Duration of 1.25–3.5 years over the past five years. Currently, it holds about 20 per cent in G-secs (with a tilt towards longer maturities of 30–40 years), 18 per cent in AAA-rated corporates, 30 per cent in non-AAA papers, and around 12 per cent in money market instruments. IRSF is among the three funds in the category—alongside Nippon India Conservative Hybrid and SBI Conservative Hybrid Fund—that maintain higher allocations to non-AAA assets, with a 26–51 per cent range over the past five years.
The non-AAA segment plays a crucial role in boosting portfolio yield. Exposure here is guided by spreads and interest rate outlook, alongside careful evaluation of balance sheet strength, leverage, group backing, and market positioning. Currently, around 4 per cent of assets are in A-rated instruments, including Ashiana Housing, Kogta Financial, Prism Johnson, and Bamboo Hotel & Global Centre. At close to 26 per cent, the AA-rated holdings were around 26 per cent that featuring names such as Aadhar Housing Finance, Sheela Foam, JM Financial Credit Solutions, Narayana Hrudayalaya, and Yes Bank. The average maturity of these non-AAA investments is kept conservative, typically 1–1.25 years, for risk control.
Performance
Three-year rolling return analysis over the last seven years shows an average annualised return of 9.5 per cent versus the category average of 8.8 per cent, with returns ranging between 8.4 per cent and 11.4 per cent.
As of August 31, 2025, the fund’s debt portfolio carried a yield to maturity (YTM) of 7.4 per cent, ahead of the category average of 6.9 per cent. The regular plan has an expense ratio of 1.72 per cent, slightly below the category average of 1.8 per cent, while the direct plan’s expense ratio is 0.98 per cent, marginally above the category average of 0.93 per cent. Unlike the other debt categories, the high expense ratios are a minus point for this category of funds given the high debt exposure.
In terms of risk, the fund has maintained an annualised standard deviation of 2.9 per cent, versus the category average of 3.5 per cent. With its distinct allocation to non-AAA debt, consistent risk-adjusted performance, and moderate volatility, IRSF suits investors with a medium risk appetite and a minimum investment horizon of five years.
Published on September 13, 2025
