Balanced Advantage Funds vs. Aggressive Hybrid Funds: Which One Fits Your Risk Profile?

Every investor has their own version of comfort when it comes to taking risks. For some, it’s about staying the course through market swings; for others, it’s knowing there’s a cushion when things get uncertain. That’s where Hybrid Funds come in, offering a balance between risk and reward.

But even within Hybrids, the investment style, and asset allocation varies widely as per the seven sub-categories: Conservative Hybrid, Balanced Hybrid, Aggressive Hybrid, Dynamic Asset Allocation, Multi Asset, Arbitrage and Equity Savings. If you’re evaluating which approach aligns better with your investment temperament, understanding these differences is essential. Here's a closer look at how Balanced Advantage Funds and Aggressive Hybrid Funds are different.

Understanding the Fund Types:
Balanced Advantage Funds (BAFs) tend to keep equal proportion of balance between equity and debt. These funds shift the allocation as per prevailing market conditions, market valuations and a defined rule set by the fund house. Aggressive Hybrid Funds, on the other hand, have a higher exposure to equities. They are required to invest between 65% and 80% in equities and the remaining 20% to 35% portion in debt.

Key Differences:

 The primary distinction lies in the flexibility of asset allocation. BAFs can reduce equity exposure during market peaks and increase it during corrections, aiming to manage risk dynamically. Aggressive Hybrid Funds remain largely invested in equities, at least 65% in unhedged equities, offering the potential for long-term growth but with relatively higher exposure to short-term market volatility.  

Risk and Return Considerations:
From a risk perspective, Balanced Advantage Funds are generally considered more suitable for investors with moderate to high risk tolerance. Since the allocation is adjusted as per market conditions, they may offer lower downside volatility. However, this dynamic nature may also lead to underperformance during sustained market rallies if equity exposure remains conservative.

Aggressive Hybrid Funds, with their consistently high equity exposure, are relatively more volatile but have the potential to benefit more during upward market trends. That said, their performance is also more vulnerable to equity market corrections, making them better suited for investors with a higher risk appetite and longer time horizon.

It is important to note that historical performance is not indicative of future results. Both categories carry market risks, and investors should evaluate them in the context of their long-term goals and risk tolerance.

Suitability and Investment Horizon:

For investors who prefer a hands-off approach and are not comfortable with timing markets, Balanced Advantage Funds provide a mechanism for professional rebalancing. Conversely, Aggressive Hybrid Funds are well-suited for those who have a higher risk appetite and still looking to protect some downside volatility with debt allocation.    

Risk and Return: 
Aggressive Hybrid Fund category has delivered 16.93% over a five year trailing period as of August 8, 2025. On the other hand, Balanced Advantage Fund category has delivered 12.56% during the same period.

The Standard Deviation, which indicates the volatility of returns from the average yearly return, was 11.03 for Aggressive Hybrid Funds while the Standard Deviation of Balanced Advantage Funds category was 8.07, as of July 31, 2025, over a five year period. (Source: Morningstar). For instance, if a fund’s average yearly return is 12% and the standard deviation is 8, the returns could range from 20% on the higher side to 4% at the bottom.

As we can see, Aggressive Hybrid Funds have the potential to deliver relatively higher returns over long run due to higher equity exposure but they may come with higher volatility as compared to Balanced Advantage Funds.

Taxation Implications:
Both Balanced Advantage Funds and Aggressive Hybrid Funds are treated as equity-oriented schemes for taxation purposes, provided they maintain a minimum equity exposure (including equity arbitrage) of 65%.

• Short-Term Capital Gains (STGC) on units held for less than 12 months are taxed at 20%.
• Long-Term Capital Gains (LTCG) on units held for more than 12 months are tax-free up to Rs 1.25 lakh per financial year. Gains exceeding this threshold are taxed at 12.5% without indexation.

The internal rebalancing within Balanced Advantage Funds does not result in a tax event for the investor, as the changes occur within the fund structure. This can be an efficient way to manage capital without triggering frequent tax liabilities. 

Choosing the Right Fund for Your Risk Profile:
The choice between a Balanced Advantage Fund and an Aggressive Hybrid Fund should stem from a clear understanding of your financial objectives, investment horizon, and comfort with market volatility.

• If relative stability is your priority, and you seek participation in equity markets with limited downside exposure, a Balanced Advantage Fund may align better.
• If you're aiming for long-term capital appreciation, and can endure short-term volatility, an Aggressive Hybrid Fund may be more appropriate.

Asset allocation plays a critical role in long-term wealth creation, and both these fund categories offer structured ways to diversify risk while maintaining equity participation.

Conclusion
Selecting between a Balanced Advantage Fund and an Aggressive Hybrid Fund is an outcome of your individual risk appetite, goals and investment time horizon. For many investors, understanding how much market volatility they’re comfortable with is more valuable than chasing a particular strategy. This is where the guidance of a qualified financial advisor becomes essential. A well-informed advisor can help identify not only which fund structure suits your financial goals but also how it fits into your overall portfolio and risk profile. 

Learn More:

PGIM India Aggressive Hybrid Equity Fund | PGIM India Balanced Advantage Fund