Bank of India Mid & Small Cap Equity & Debt Fund (BOIEDF) differentiates itself within the aggressive hybrid fund category through its unconventional equity strategy. While most aggressive hybrid funds lean heavily on large-cap stocks, BOIEDF completely avoids large-caps and focuses solely on mid and small-cap equities. This approach has enabled the fund to capitalise on the higher growth potential of smaller companies, delivering a compounded annualised return of 16.5 per cent since its launch in July 2016. However, its concentrated exposure to this volatile segment increases risk, making it a less suitable choice for conservative investors or those seeking a more stable hybrid allocation.
High-risk, high-return strategy
Funds in the aggressive hybrid category invest 65–80 per cent in equities and the rest in debt, aiming to balance growth and stability. They suit investors seeking equity-like returns with lower volatility than pure equity funds.
Over the past five years, BOIEDF has consistently maintained an equity exposure between 70–78 per cent, targeting the growth prospects of mid and small-cap stocks. It employs its debt allocation as a stabilising mechanism to counterbalance equity volatility. The fund exits any stock that transitions into the large-cap space, staying true to its mid and small-cap mandate. On average, it has allocated 46 per cent to mid-caps and 31 per cent to small-caps. It applies strict quality filters in small-cap selection, preferring companies with sound business models. To manage liquidity risk, it ensures that 80 per cent of its portfolio can be liquidated within six working days, even under the assumption of just 20 per cent market participation, which limits individual small-cap exposure to 3 per cent.
Disciplined stock selection
BOIEDF’s stock picking is based on financial parameters such as return on equity, cash flow strength, and a qualitative analysis of business sustainability and competitive edge. Currently, the portfolio leans towards domestic themes, in alignment with government-led capital expenditure. The fund favours infrastructure, power, and consumer discretionary sectors while being selective in financial services, non-consumer discretionary, and IT. Diversification is maintained with the fund holding between 40 and 68 stocks over the past five years.
Debt as a volatility cushion
Managed by Alok Singh, who oversees both the equity and debt sides, the fund adopts a conservative debt strategy. It prefers short-duration instruments with tenures of 1–2 years, largely in AAA and AA+ rated securities, deliberately avoiding high-yield credit bets. The debt allocation is passively held but tactically deployed to manage liquidity and reduce volatility. This structure allows the fund to absorb market shocks better and take advantage of opportunities without needing to sell equity holdings under pressure.
Performance
The fund has delivered commendable performance during bull phases such as August 2020 to December 2021 and August 2022 to December 2024. However, it lagged behind peers during market corrections, notably in the downturn between December 2024 and March 2025, when it posted a return of -17 per cent compared to the category average of -13 per cent. Despite this, its long-term performance remains robust, with five-year rolling returns averaging 18 per cent annually, well above the category average of 13 per cent. These returns have varied between 9 per cent and 30 per cent. However, this outperformance comes with higher volatility; the fund’s annualised standard deviation of 15.7 per cent is the second highest in the category, compared to the average of 11.7 per cent.
The expense ratio for the regular plan is 2.08 per cent, close to the category average of 2.03 per cent, while the direct plan is slightly cheaper at 0.77 per cent, below the category norm of 0.83 per cent.
Who should consider?
Several other aggressive hybrid schemes, such as LIC MF, HSBC, and JM Aggressive Hybrid, also maintain notable mid and small-cap allocations, with exposures of up to 35 per cent. BOIEDF, with its significantly higher 71 per cent exposure, stands out as a high-risk, high-reward option. Despite its eye-popping returns during market rallies, the fund is not suitable for investors with a low-risk appetite. For those hesitant to commit fully to mid and small-cap funds due to volatility, this fund offers a middle path: growth potential with some degree of stability. It can also serve as a suitable addition to the portfolio of long-term investors aiming for better risk-adjusted returns while keeping mid and small-cap exposure at a manageable level.