ICICI Prudential Equity and Debt Fund (IEDF) is among the few schemes that have consistently maintained a high rating under the bl.portfolio Star Track MF ratings, earning either a five-star or four-star rating since the framework was introduced in October 2018. In the latest edition, it holds a five-star rating, reflecting its ability to generate relatively strong risk-adjusted returns within its category. Earlier known as ICICI Prudential Balanced Fund, it is one of the oldest hybrid funds in the Indian mutual fund industry. Since its launch in November 1999, the fund has delivered a compounded annualised return of around 15 per cent. With assets under management of ₹46,700 crore, it is currently the second-largest fund in its category, after SBI Equity Hybrid Fund, which manages ₹76,292 crore as of March 2026.

In line with SEBI guidelines for aggressive hybrid schemes, IEDF allocates a majority of its portfolio to equities, typically within the 65–80 per cent range, while the balance is deployed in debt instruments. The fund follows a rule-based asset allocation framework that guides shifts between equity and debt using a mix of valuation metrics and macroeconomic signals. Valuations form the core of the model, while macro indicators play a supporting role. These include factors such as crude oil prices and liquidity conditions, which are not fixed but are periodically refined to reflect evolving economic realities. Over the past five years, its equity allocation has largely stayed in the 65–75 per cent band, adjusting in response to changing market conditions.

Equity allocation

In equities, stock selection is guided by a contrarian, bottom-up, and counter-cyclical approach. Under the contrarian strategy, the fund invests in out-of-favour sectors when market sentiment is negative. For instance, about a year ago, amid concerns that quick commerce would disrupt traditional retail, the fund considered these fears overdone. It increased exposure to stocks like Trent and Avenue Supermarts, expecting resilience, as it believed quick commerce lacked durable competitive advantages. However, these additions have yet to deliver meaningful returns.

The counter-cyclical strategy involves investing in sectors undergoing temporary downturns or heightened competitive pressure. The fund has benefitted from such allocations in the past, particularly in sectors such as power, metals, autos, and telecom, where it capitalised on recovery phases. A contrarian strategy means doing the opposite of the crowd, buying what others are avoiding and selling what’s popular. A counter-cyclical strategy means adjusting based on the economy, taking more risk in bad times and becoming cautious in good times. One follows sentiment; the other follows economic cycles.

The overall equity portfolio currently shows overweight positions in power, pharmaceuticals, and automobiles, along with selective exposure to retail-oriented stocks. Banking is maintained at an equal weight, while IT remains underweight. The top three sectors were banks (15 per cent), auto (5 per cent), and pharma (6 per cent) as of March 2026. Over the past year, the fund increased its allocation to FMCG, IT, and petroleum products by 2–3 per cent, while reducing exposure to banks, auto, and telecom by 2–4 per cent.

The fund has demonstrated a clear preference for large-cap stocks, maintaining an average allocation of 60 per cent to large-caps over the last five years. Apart from this, only two other funds from Quant MF and Groww MF follow a large cap oriented approach in the category. However, it has recently increased exposure to mid- and small-cap stocks, especially during market corrections. Twelve out of 29 funds increased their allocation to mid- and small-cap stocks during the period, including funds from Kotak MF and Union MF. Currently, the large-, mid-, and small-cap allocation stands at 62 per cent, 7 per cent, and 6 per cent, respectively.

Debt allocation

The fund manages its debt portion within the requirement of maintaining at least 20 per cent exposure to fixed-income instruments, using a flexible and actively managed approach. It balances short- and long-term securities and shifts between accrual and duration strategies depending on interest rate trends. When rates are rising, the focus is on earning higher yields by increasing exposure to AA-rated papers with better spreads, as seen in 2020–2021, when such exposure rose to 24 per cent. In contrast, when rate cuts are anticipated, the fund increases allocation to government securities and high-rated instruments to benefit from duration gains. This was evident in 2024–2025, when AAA and G-sec exposure rose to 17 per cent. Currently, G-sec and AAA exposure stands at about 15 per cent, while exposure to non-AAA papers has reduced to around 5 per cent.

The present portfolio includes small allocations to A+ rated issuers such as Adani Capital and Bamboo Hotel and Global Centre (Delhi), along with AA-rated names like 360 One Prime, JM Financial Credit Solutions, Manappuram Finance, and Vedanta. The Macaulay duration of the portfolio has ranged from 1 year to 4.6 years and currently stands at 3.7 years. Simply put, Macaulay duration indicates how long, on average, it takes for a debt fund to recover its invested capital through bond cash flows, including interest payments. As of March, 2026, the fund’s debt portfolio reported a yield to maturity of 7.7 per cent, compared with the category average of 7.5 per cent. 

Performance

A look at five-year rolling returns over the last 10 years shows that the fund posted an average annual return of 18 per cent, significantly outperforming the category average of 14 per cent. The five-year return range has varied between 11.8 per cent and 30 per cent, indicating both resilience and upside potential. The fund also demonstrated strong performance in three-year rolling returns, delivering a 17 per cent CAGR compared with the category average of 13 per cent.

From a cost perspective, the regular plan has an expense ratio of 1.54 per cent, lower than the category average of 2 per cent. The direct plan, however, has an expense ratio of 0.94 per cent, slightly higher than the category average of 0.84 per cent.

Investors new to equity markets who want limited exposure to equity risk, as well as those with a moderate risk profile, can consider this fund. Given the current volatile environment, investing through a systematic route is preferable, with a minimum investment horizon of five years.

Published on April 25, 2026