Aggressive hybrid funds are a type of mutual fund that strategically combines equity and debt instruments to seek enhanced returns while managing risk. By allocating 65-80% of their assets to stocks and the remainder to debt, these funds aim to capture the upside potential of the equity market while mitigating some of its inherent volatility. This balanced approach makes them attractive to investors seeking diversification and the potential for growth.
What is Aggressive Hybrid Mutual Fund?
In simple terms Aggressive Hybrid Mutual Funds are a type of hybrid mutual funds that allocate 65-80% of their assets to equity (stocks) and the remaining 20-35% to debt (bonds and money market instruments). Unlike balanced funds, they can exploit arbitrage opportunities, buying low in one market and selling high in another to profit from price differences.
Arbitrage involves buying a security cheaply in one market and selling it at a higher price in another. Aggressive Funds grant more freedom to managers, allowing them to pursue arbitrage and choose between growth or value stocks. Managers also select bonds with different interest rate sensitivities.
How does an aggressive hybrid mutual fund work?
To ensure stability, aggressive growth funds maintain a blend of equity and debt investments, adhering to SEBI standards which mandate a minimum of 20% allocation to debt and fixed deposit (FD)-like instruments. Equities offer long-term growth potential, while debt instruments provide income stability.
Aggressive hybrid mutual funds aim to merge the benefits of both equity and debt investments into a single portfolio. Achieving favourable outcomes necessitates patience and a long-term perspective, as the equity portion performs well during market upswings, while debt investments offer a protective buffer during market downturns.
Features of an aggressive hybrid mutual funds
The key features of aggressive hybrid mutual funds include:
- Returns and duration: Ideally suited for medium-term goals, though profitability may be affected by volatility and market fluctuations.
- Investment portfolio: With a heavy emphasis on equities, these funds carry a high-risk profile, making them inappropriate for risk-averse investors.
- Risk: As implied by the name, these funds typically exhibit high levels of risk within the mutual fund landscape.
Advantages of Aggressive Hybrid Mutual Funds
Aggressive Hybrid Mutual Funds offer several advantages, including:
- Diversification: These funds provide exposure to both equities and debt instruments, reducing overall portfolio risk through diversification.
- Potential for higher returns: With a strategic allocation to equities, Aggressive Hybrid Funds have the potential to deliver higher returns over the long term, outperforming traditional fixed-income investments.
- Risk management: The blend of equity and debt components helps mitigate market volatility and downside risks, offering stability during turbulent market conditions.
- Professional management: Aggressive Hybrid Funds are managed by seasoned fund managers who employ sophisticated investment strategies to optimise returns and manage risks effectively.
Types of aggressive mutual funds
Primarily, there are two major types of aggressive mutual funds:
Aggressive growth funds
These funds are specifically designed for investors looking for substantial gains. These funds focus on growth assets (stocks) and have the potential to generate high returns. However, they also come with higher risks.
Hence, these funds are best suited for those who are willing to take on more risk to achieve higher returns over time.
Aggressive hybrid funds
These funds create a balance between equity (stocks) and debt (bonds). They usually invest 65-80% in stocks, with the rest in debt instruments. To reduce the risk generated by equity, a portion of these funds is invested in debt instruments. Such a combination allows investors to benefit from stock market gains while reducing the overall volatility of the fund's performance.
Hence, these funds are ideal for investors in the “accumulation phase”. This represents a class of investors who want automatic rebalancing so they can maintain the desired asset allocation without manually adjusting their portfolio.
Who should invest in Aggressive Funds?
Aggressive Hybrid Funds cater to investors seeking to create wealth but do not want to invest in highly risky instrument like equity funds. These funds are ideal for individuals with moderate to high-risk tolerance who aim for steady capital appreciation over the long term.
Whether you are a first-time investor or a seasoned one, Aggressive Hybrid Funds offer a diversified investment avenue suitable for various financial objectives.
Where do Aggressive Hybrid Mutual Funds invest?
Aggressive Hybrid Funds are subject to regulatory guidelines that mandate an equity allocation of between 65% and 80% of their total assets. A minimum of 20% of their portfolio must be invested in debt instruments at all times. While there are no specific restrictions on the types of equities or debt securities within these allocations, most funds adopt a diversified approach, investing in companies of varying sizes and across different sectors. The allocation to debt may vary from fund to fund, reflecting distinct investment strategies.
What kind of returns you can earn from Aggressive Hybrid?
Aggressive Hybrid Funds have exhibited an average annualised return of 19.67% over the past five years. This performance is underscored by three-year and ten-year annualised returns of 16.69% and 14.09%, respectively.
Taxation rules of aggressive mutual funds
When it comes to taxation, aggressive mutual funds are taxed like equity funds. The Union Budget 2024 introduced new tax rules that took effect on July 23, 2024. Let’s see the latest long-term and short-term capital gains tax rates and related provisions:
- Long-term capital gains (LTCG)
Gains from aggressive mutual funds held for over 12 months are taxed at 12.5% for amounts exceeding Rs. 1.25 lakh per year. Now, the government has removed the indexation benefit. This implies you cannot adjust gains for inflation. - Short-term capital gains (STCG)
Gains arising from the sale of aggressive mutual funds held for less than 12 months are taxed at 20%. However, for any units redeemed between April 1, 2024, and July 22, 2024, the old tax rates will still apply.
Risks involved in aggressive hybrid funds
Aggressive hybrid funds blend equity and debt instruments in their portfolios, balancing risk and return for investors. This strategy is particularly appealing to investors who seek higher returns than traditional debt funds but wish to avoid the increased risk associated with pure equity investments.
Equity markets are known for their volatility. Usually, prices fluctuate sharply in response to economic conditions and market sentiment. By allocating a significant portion to equities (about 65-80%), aggressive hybrid funds let investors enjoy capital appreciation during market upswings.
On the other hand, investing in debt instruments (representing the remaining portion) serves as a buffer during market downturns. That’s because debt securities cushion the overall portfolio from severe losses during market corrections.
Furthermore, investors must note that during bullish phases, when equity markets rally, aggressive hybrid funds benefit from the appreciation in equity values. This boosts their overall returns for investors. Meanwhile, the fixed income from debt instruments remains relatively steady and provides a stable income stream.
This balanced approach makes aggressive hybrid funds suitable for investors with a moderate risk tolerance. They offer more returns than conservative debt funds but are less volatile than pure equity funds.
Aggressive hybrid mutual funds may deliver up to 55% return in one year. Should you invest now?
When it comes to 1-year returns, some aggressive hybrid mutual funds have shown impressive performance. For example, the JM Aggressive Hybrid Fund has delivered a 55.48% return over the past year. On the other hand, the Bank of India Mid & Small Cap Equity & Debt Fund achieved a 47.28% return in the same period.
Both these funds invest in equities and debt instruments. This way, they offer high returns while managing risk. After considering these strong returns, you might find it appealing to invest now. However, decide only after assessing your risk tolerance and investment goals.
Factors to consider before investing in Aggressive Mutual Funds in India
- Assess the risks and returns: Understand the risk-return profile of Aggressive Hybrid Funds, considering both the equity exposure and debt component. Evaluate your investment horizon and financial goals to determine if these funds align with your objectives.
- Expense ratio: Pay attention to the expense ratio, which impacts the overall returns of the fund. Opt for funds with competitive expense ratios to maximise your investment gains over time.
- Selecting the right aggressive fund: Conduct thorough research and select Aggressive Hybrid Funds managed by experienced fund managers with a proven track record of delivering consistent returns. Analyse the fund's investment strategy, portfolio holdings, and past performance to make an informed decision.
- Aggressive fund taxation: Understand the tax implications associated with Aggressive Hybrid Funds, including capital gains tax on equity investments and tax on dividends. Familiarise yourself with the tax-saving opportunities and implications to optimize your investment strategy.
List of some aggressive mutual funds
- Quant Absolute Fund
- HDFC Hybrid Equity Fund
- Groww Aggressive Hybrid Fund
- Canara Robeco Equity Hybrid Fund
- JM Aggressive Hybrid Fund
- Mahindra Manulife Aggressive Hybrid Fund
- Kotak Equity Hybrid Fund
- Mirae Asset Aggressive Hybrid Fund
- UTI Aggressive Hybrid Fund Direct Fund
How to invest in Aggressive Hybrid Funds on the Bajaj Finserv Platform?
Investing in mutual funds on the Bajaj Finserv platform is quite easy. Follow these steps:
- Visit the Bajaj Finserv website or app and navigate to the ‘Mutual funds’ section.
- Click on EXPLORE FUNDS.
- Filter by scheme type, risk appetite, returns, etc. or choose from the top performing funds list.
- All the mutual funds of the particular category will be listed, along with the minimum investment amount, annualised return, and rating.
- Get started by entering your mobile number and sign in using the OTP.
- Verify your details using your PAN, date of birth. If your KYC is not complete, then you will have to upload your address proof and record a video.
- Enter your bank account details.
- Upload your signature and provide some additional details to continue.
- Choose and select the mutual fund that you want to invest in.
- Choose whether you want to invest as SIP or lumpsum and enter the investment amount. Click on ‘Invest Now’.
- Select your payment mode i.e., Net Banking, UPI, NEFT/ RTGS.
- Once your payment is done, the investment will be complete.
Conclusion
In conclusion, Aggressive Hybrid Mutual Funds present a compelling investment option for individuals seeking a balanced approach to wealth creation. By understanding the fundamentals of Aggressive Hybrid Funds and considering key factors before investing, investors can harness the potential of these funds and aim to achieve their financial goals and secure a brighter future.
Investing in Aggressive Hybrid Funds requires careful consideration of one's risk tolerance, investment horizon, and financial objectives. By leveraging the benefits of diversification, professional management, and growth potential offered by Aggressive Hybrid Funds, investors can navigate the dynamic investment landscape with confidence and resilience.
