ICICI Pru Equity & Debt Fund: Exhibiting Strong Performance Across Market Conditions

Launched in November 1999, ICICI Pru Equity & Debt Fund has a legacy of over 25 years, making it one of the seasoned players in the Aggressive Hybrid Fund category. Since its inception, the fund has demonstrated strong performance, delivering an impressive CAGR of around 15.2%, thereby consistently meeting the long-term expectations of its investors. As an aggressive hybrid fund, ICICI Pru Equity & Debt Fund follows a balanced strategy by allocating its assets across equities and debt. This dual approach enables it to generate long-term capital appreciation through equity investments while ensuring steady accrual income and stability through its debt holdings.

Over the years, ICICI Pru Equity & Debt Fund has managed to outshine both its benchmark and the category average by a considerable margin. Its ability to deliver superior performance has attracted significant investor interest, helping it grow into the second-largest scheme in the Aggressive Hybrid Fund category, with a sizable AUM of Rs 39,770 crore. While it may not always rank as the top performer in its category, ICICI Pru Equity & Debt Fund has consistently outpaced the benchmark and most of its peers over extended periods. Despite experiencing a phase of underperformance during the 2020 market downturn, the fund demonstrated resilience and staged a strong comeback in the subsequent recovery and bull phase, rewarding its investors with noteworthy gains.

Over the last five years, ICICI Pru Equity & Debt Fund has achieved a CAGR of 21.1%, significantly exceeding the 13.8% CAGR of the CRISIL Hybrid 35+65 Aggressive Index. An investment of Rs 10,000 in ICICI Pru Equity & Debt Fund would now be worth Rs 26,089.

ICICI Pru Equity & Debt Fund has a strong track record of rewarding long-term investors, even though it has faced challenges over shorter periods. In the 2020 market crash, the fund underperformed, trailing its benchmark and many of its peers. However, it saw a strong bounce back and has demonstrated significant improvement in recent years. Over the past 1-year, 2-year, and 3-year periods, it has outperformed the CRISIL Hybrid 35+65 Aggressive Index by a notable 8.8-11 percentage points on a rolling returns basis, surpassing most of its peers and earning a spot among the top performers in the Aggressive Hybrid Fund category. Over longer periods of 5 and 7 years, the fund has consistently beaten its benchmark and category average by 3.5-7 percentage points.

ICICI Pru Equity & Debt Fund has achieved this strong performance at a lower volatility compared to the category average and reasonable levels relative to the benchmark. Its ability to deliver superior risk-adjusted returns is evident in its Sharpe Ratio of 0.34 which is among the best in the category and significantly higher than the benchmark's metrics.

What is the investment strategy of ICICI Pru Equity & Debt Fund?

Categorised under aggressive hybrid equity funds, ICICI Pru Equity & Debt Fund is mandated to invest 65% to 80% of its assets in equities and 20% to 35% of its assets in debt and money market instruments. Under normal circumstances, the fund maintains at least 65% allocation to equities and up to 35% in debt. It predominantly follows a combination of the top-down and bottom-up approaches to picking stocks across market capitalisation. While the top-down approach enables the fund to select stocks from an array of industries and thus reduce risk exposure, the bottom-up approach enables it to select individual companies having strong performance potential.

The fund managers do not resist taking contrarian bets on beaten-down sectors and stocks, to benefit from market anomalies. The potential stocks are analysed on parameters such as long-term growth prospects, Price to Earnings ratio, dividend income potential, and earnings power. Following a blend style of investment, ICICI Pru Equity & Debt Fund gives high impetus to long-term growth strategies and follows a buy-and-hold strategy to derive the full potential of stocks in the portfolio.

For its debt allocation, ICICI Pru Equity & Debt Fund intends to tactically invest in longer duration fixed income securities with a credit rating of AA and above, aiming to generate reasonable income through regular accruals. It seeks to take exposure in well-researched corporate securities to earn reasonable carry-over wealth. The fund also invests in fixed-income securities issued by the government, quasi-government agencies, and corporate and multilateral agencies.

ICICI Pru Equity & Debt Fund allocates about 65-70% of its assets in equities and usually holds a large portfolio of 75-85 stocks. As of December 31, 2024, the fund's portfolio was diversified across 86 stocks with the top 10 stocks accounting for 42.4% of the portfolio. The fund held its top exposure in large-cap names like ICICI Bank, HDFC Bank, NTPC, Maruti Suzuki India, Bharti Airtel, and Sun Pharma. Many of the stocks in its top 10 holdings have been part of the fund's portfolio for several years now. ICICI Pru Equity & Debt Fund's allocation is skewed to the top holdings, leaving behind a long tail of over 70 stocks with an exposure of less than 1% in each. It holds most of its stocks with a long-term view and has thus recorded a low turnover ratio of around 30% in the last one year.

In the last two years, NTPC, Bharti Airtel, ONGC, ICICI Bank, HCL Technologies, Sun Pharma, and TVS Motor Company were among the stocks that turned out to be major gainers in the portfolio, contributing around 27% to its absolute returns. It also benefitted substantially from its holdings in Infosys, L&T, Chalet Hotels, Maruti Suzuki India, SBI, and Hindalco Industries, among others. The fund also benefitted from Wockhardt, Mankind Pharma, Inox Wind, Interglobe Aviation, Piramal Pharma, Cummins India, and Siemens, among others that have risen significantly in value since the time the fund added them in the portfolio.

ICICI Pru Equity & Debt Fund's portfolio is diversified across a wide range of sectors with Banks & Finance having the highest exposure of 21%. Auto, Power, Pharma, Telecom, and Retail are the other prominent sectors with an allocation between 4% to 8%. It also holds diversification to Infotech, Oil & Gas, Petroleum, and Engineering among others.

ICICI Pru Equity & Debt Fund allocates around 20% of its assets in debt instruments. The fund's debt allocation is mainly in moderate-to-high rated corporate debt and certificate of deposits, with a minor allocation to low-rated instruments carrying high credit risk. It also holds exposure to G-Secs and Treasury bills. The average maturity of the debt portfolio is currently 2.6 years which makes it moderately sensitive to interest rate risk. It is important to note that the fund manages its debt portfolio dynamically and shifts the duration of the portfolio as per the prevailing market conditions and outlook.

Is ICICI Pru Equity & Debt Fund suitable for my investment goals and risk tolerance?

ICICI Pru Equity & Debt Fund's focus on long-term investments and disciplined risk management have helped it achieve superior risk-adjusted returns. While the fund generally leans towards large-cap stocks, it adjusts the market cap allocation of the portfolio based on valuations in a particular segment and prevailing market conditions. This flexibility allows the fund to effectively handle market volatility and outperform both the benchmark and category average by prioritising fundamentally sound stocks.

ICICI Pru Equity & Debt Fund's debt investments primarily include highly liquid sovereign-rated G-Secs, with a modest allocation to moderate-rated corporate bonds. While these bonds can boost returns, they can expose the portfolio to higher credit risk. However, the fund's diversified holdings across a range of securities helps it mitigate such risks effectively.

ICICI Pru Equity & Debt Fund is suitable for investors with a moderate to high risk appetite, seeking a balance between growth and stability and having an investment horizon of 3 to 5 years or more.

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Note:  This write up is for information purpose and does not constitute any kind of investment advice or a recommendation to Buy / Hold / Sell a fund. Returns mentioned herein are in no way a guarantee or promise of future returns. As an investor, you need to pick the right fund to meet your financial goals. If you are not sure about your risk appetite, do consult your investment consultant/advisor. Mutual Fund Investments are subject to market risks, read all scheme related documents carefully. Registration granted by SEBI, Membership of BASL and certification from NISM no way guarantee performance of the intermediary or provide any assurance of returns to investors.

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DIVYA GROVER is the co-editor for FundSelect, the flagship research service of PersonalFN. She is also the co-editor of DebtSelect. Divya is an avid reader which helps her in analysing industry trends and producing insightful articles for PersonalFN’s popular newsletter – Daily Wealth letter, read by over 1.5 lakh subscribers.
Divya joined PersonalFN in 2019 and has since then used stringent quantitative and qualitative parameters to analyse funds to provide honest and unbiased research to investors. She endeavours to enable investors to make an informed investment decision and thereby safeguard their wealth.

Disclaimer: Investment in securities market are subject to market risks, read all the related documents carefully before investing.
This article is for information purposes only and is not meant to influence your investment decisions. It should not be treated as a mutual fund recommendation or advice to make an investment decision in the above-mentioned schemes.

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