Aggressive Hybrid Funds

Aggressive hybrid funds largely invest in equity-linked instruments. In these funds, the equity allocation ranges from 65% to 80%, with the remaining 20% to 35% focused on debt instruments, as per SEBI’s guidelines. 

 

The main objective of these funds is to help generate consistent wealth in the future. Diversifying the investment in various avenues helps ensure that these funds are less risky when compared to equity funds. 

Thus, aggressive hybrid fund returns are usually similar to those generated by equity funds in the long term.

Aggressive hybrid funds invest in equity and debt instruments. The equity component has the potential to generate higher returns and accumulate wealth in the long term. On the other hand, the debt component offers stability and helps generate consistent earnings. 

 

By allocating your investment to equity as well as debt instruments, the fund offers the benefit of both asset classes. Such schemes also have the flexibility to benefit from arbitrage opportunities to earn profits.

Here are a few advantages associated with investing in aggressive hybrid funds.

• Less Volatile 

   

Since aggressive hybrid funds invest in debt securities as well, the level of volatility is lower compared to equity funds. In case of volatile market conditions, the risks will be lower as the debt component of the fund will help cover the losses up to an extent. 

• Portfolio Diversification

   

With aggressive hybrid funds, you get the opportunity to diversify your investment portfolio with high-risk, high-return asset classes as well as low-risk, low-return asset classes. 

 

This helps ensure that the returns of your investment are not entirely dependent on equity. In case of any fluctuations in the market, the debt portion of the fund helps lower the impact. 

• Automatic Rebalancing

   

Aggressive hybrid funds rebalance the portfolio allocation regularly to meet the prescribed allocation limit. During a bullish market, the value of the fund’s equity holdings also increases, and there is a higher allocation towards equity instruments. 

• Ease of Investment

   

These funds eliminate the need to invest in different types of funds to get exposure to different asset classes. Also, the responsibility of asset allocation and management of the fund is on the fund manager. This offers ease of investing since you do not need to manage the fund.

Since a major portion of the portfolio in aggressive hybrid funds are allocated to equity and equity-linked instruments, the volatility is on the higher side. With fluctuations in market conditions, the value of equity also constantly changes. 

 

Hence, the probability of loss is higher when you invest in these types of funds.

Check out the important points to consider before investing in these funds.

• Risk and Return

   

Aggressive hybrid funds do not offer guaranteed returns. This is because a significant portion of the mutual fund is allocated to equity instruments.

 

Since the equity component carries high volatility, the returns are not assured despite the fund including a portion of debt securities. In addition, any fluctuation in interest rates may impact your potential returns.  

• Associated Costs

   

Aggressive hybrid funds have an expense ratio for the management of the fund. Investing in a mutual fund that has a high expense ratio can affect the returns you receive. Therefore, it’s usually ideal to choose a scheme that has a low expense ratio.

• Investment Duration

   

Since these funds have a significant portion invested in equities, they carry a high level of volatility. You can invest in these funds for a longer duration to reduce their effect. This way, you can overcome volatility risk and get maximum returns on your investment.

• Taxation

   

Since aggressive hybrid funds majorly invest in equity funds, they will be taxed as such. Therefore, for investments held for under 1 year, the Short-term Capital Gains (STCG) tax is 15%.  Meanwhile, funds held for longer than a year are charged 10% Long-term Capital Gains (LTCG) tax if the returns exceed ₹1 Lakh.

Aggressive hybrid funds majorly invest in equity and instruments related to equity, with a small portion allocated to debt securities. Therefore, invest in these funds if you have a moderate or high risk appetite. 

 

This is because equity instruments are generally volatile in nature. Also, investing for a minimum duration of 5 years is ideal to reduce the effect of volatility and earn good returns. So, ensure you can stay invested for the long term before you choose these schemes. 

To earn returns that match your investment goals, assess your risk tolerance and requirements before choosing a hybrid scheme. You can explore various mutual fund options on Bajaj Markets. Compare various options with ease online and benefit from a convenient application process.