If you have an aggressive investment approach but don't want to ignore the stability offered by debt securities completely, an aggressive hybrid fund deserves a spot in your portfolio. Read this post to learn more.
Aggressive investors make, high-risk investments, mostly into asset classes like equity which is known for its volatility. But even if you have an aggressive investment approach, a small exposure to debt markets can help to add the balance to your portfolio.
If you can relate to this investment approach, you can think about adding aggressive hybrid funds to your portfolio. Let’s have a detailed look at what they are-
What are Aggressive Hybrid Mutual Funds?
Hybrid funds is an open ended hybrid scheme investing predominantly in equity and equity related instruments. The hybrid schemes are further divided into sub-categories, which includes aggressive hybrid funds. As per the guidelines, aggressive hybrid schemes invests in Equity & Equity related instruments- between.
As the investment is spread across equity and debt markets, aggressive hybrid funds can be potentially less risky than pure equity funds. However, they can be significantly riskier than pure debt funds due to higher equity exposure. So, investors should analyze their risk appetite before investing.
What are the Top Features of Aggressive Hybrid Mutual Funds?
Some of the notable features of aggressive funds are as follows-
Equity and Debt Investment
Aggressive mutual funds offer exposure to both equity and debt markets. While the debt component is smaller.
Dynamic Rebalancing
Fund managers rebalance the portfolio regularly to take maximum advantage of market movements. For example, higher allocations are made to debt when equity is underperforming, and debt exposure is reduced when markets rise.
Tax Efficient
Aggressive funds are taxed as equity schemes as they invest at least 65% of the assets in equity. So, even with a debt component of up to 35%, investors can take advantage of equity taxation with these funds.
Who can Invest in Aggressive Hybrid Funds?
Invest in aggressive mutual funds if-
You’re New to Equity Investments
With an aggressive fund, you also get debt exposure which further reduces the investment risk. The combination of equity and debt can also diversifies your portfolio.
Also Read: All You Need To Know About Portfolio Diversification
You Have Medium-Term Financial Goals
Aggressive hybrid schemes can be considered for medium-term investments ranging from 5-7 years or more. So, you can consider investing in them for objectives like purchasing a new car, a down payment for a home, etc. However, as these schemes have considerably higher equity exposure, they are not ideal for short-term investments of less than 3 years.
You’re in Your 40s-50s
If you’re in your 40 or 50s and feel your retirement plan is underperforming, you can give it a push with an aggressive fund.
How to Select the Right Aggressive Hybrid Mutual Fund?
Choose funds based on-
Portfolio Composition
The risk level of an aggressive scheme with mostly large-cap and mid-cap companies will be lower than a scheme with mostly small-cap and mid-cap stocks. So, check the portfolio composition and choose a scheme that aligns with your risk appetite.
Expense Ratio
The expense ratio is the fund management fee charged by the fund house. Look for a scheme with a low or comparable expense ratio. As the expense ratio can significantly vary between fund categories, ensure you only compare the expense ratio of an aggressive hybrid fund with other aggressive hybrid funds .
Historical Performance
The past performance of any scheme has no impact on its future. However, it provides insights into how the fund manager helped the scheme navigate through the ups and downs of the market and whether or not the returns have been consistent. So, check the scheme’s historical performance of 3-5 years before investing.
The Best of Both Worlds with Aggressive Hybrid Funds
This combination of equity and debt makes aggressive hybrid schemes so popular among investors. While the higher equity exposure helps with potential long-term wealth creation, the smaller debt component can aim to cushions against volatile market movements.
Select an aggressive scheme based on the factors listed above or consult with an investment advisor who can assist you in building an investment portfolio.
Mutual Fund investments are subject to market risks, read all scheme related documents carefully.
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