A wise person had once said, “do not put all your eggs in only one basket”. Who knew, it would apply to your mutual fund investments as well. Diversification is a great risk management and portfolio balancing tool. Different asset categories perform in different market conditions. Thanks to the ever cyclical markets, all asset categories get the time to shine. Investing across asset categories helps you to make the best of all possible situations. Even during market downtime, one asset category’s underperformance can be made good by the others’ outperformance.
Hybrid Funds are those mutual funds which help you to diversify and invest in both equity and debt. The USP of these funds is that there is something for everyone – from the conventional risk-averse investor to the daring and aggressive investor.
In this article, we will talk about the aggressive hybrid funds and how despite their “aggressive” approach, they are less risky than pure equity funds. Also, do not miss out on the best aggressive funds to invest in.
What are Aggressive Hybrid Funds
Aggressive Hybrid Funds are open-ended hybrid schemes that predominantly invest in equity and equity-related securities. In other words, they adopt an aggressive (higher equity exposure) approach to investing. As per SEBI guidelines, these aggressive funds need to follow the below investment guidelines:
- Equity exposure: At least 65% (and maximum 80%) of the total assets need to be allocated in equity and equity-related instruments
- Debt: Investment in debt instruments needs to be between the range of 20% to 35%.
Fund Managers have the freedom to invest across market capitalizations (basis the market conditions) in order to generate the highest possible capital appreciation and regular income for the investors.
Aggressive Hybrid Funds earlier were referred to as balanced funds or equity-oriented hybrid mutual funds. These funds have the potential to strike the perfect balance and give higher growth (through their significant equity exposure) while managing the risk (downtime cushion provided by debt portion). Some market analysts peg them at par with multi-cap funds albeit with the lower risk profile. This category has generated 9.1% CAGR in the last three years.
Are Aggressive Hybrid Funds less risky than Pure Equity Funds?
The answer is a big YES. Debt comprises at least 1/5th of the total assets in the case of Aggressive Hybrid Funds. The presence of debt helps to bring stability (especially during volatile market conditions) and helps cushion the fall or losses. The mixed portfolio of these hybrid funds makes them suitable even for novice investors or those with low risk appetite.
A pure-equity fund can be quite a daunting investment for first-time investors. The high market volatility can scare such investors in abandoning or exiting from their investments. Aggressive Hybrid Funds helps them to ease-in into the world of equities.
Best Aggressive Funds in India
While there are many schemes available in the market, it is important to identify and invest in the best ones. This will ensure you get the optimum return out of your investment.
There are two sets of factors that you need to consider to select the best aggressive funds to invest in. These include quantitative parameters as well as qualitative parameters. Basis these factors, these are the best aggressive funds (hybrid category).
- Mirae Asset Hybrid Equity Fund
- Canara Robeco Equity Hybrid Fund
- SBI Equity Hybrid Fund
- HDFC Retirement Savings Fund – Hybrid Equity Plan
- DSP Equity & Bond Fund
- Sundaram Equity Hybrid Fund
Final Words
While these funds have aggressive in their name, they are relatively safer than pure equity mutual funds. They spread the investment across asset categories which helps to bring down the risk quotient. The almost similar returns (when compared to some equity funds) give you all the more reason to invest in these aggressive funds. For instance, aggressive hybrid funds generated 7.2% returns in the last five years while multi-cap funds gave 8% in the same period. The lesser heartache (from the lower returns) with the hybrid variant will more than compensate for the marginally lower returns.