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Aggressive hybrid funds are a type of hybrid mutual fund scheme. They majorly invest in equity and equity related instruments. The debt allocation for these funds is between 20-35% of their assets. With such a portfolio, the performance of the fund gets difficult to assess. The equity investment brings significant returns to the portfolio, but at the same time, the impact of market volatility is high. The debt component can bring stability to the portfolio returns but can be prone to credit risk and interest rate risk. Hence investors need to be cautious before they invest in these funds. For the purpose of taxation, these hybrid equity funds are treated as equity funds and are taxed similarly.
Fund Name | Returns Since Inception | Expense Ratio |
SBI Equity Hybrid Fund | 15.00% | 1.51% |
HDFC Hybrid Equity Fund | 15.60% | 1.81% |
Canara Robeco Equity Hybrid Fund | 11.50% | 1.83% |
Mirae Asset Hybrid Equity Fund | 11.90% | 1.78% |
Axis Equity Hybrid Fund | 10.50% | 2.14% |
Aggressive hybrid mutual funds are a type of open ended mutual funds that invest in both equity and debt securities. The exposure to equity is higher than debt funds. SEBI mandates an aggressive hybrid fund to invest between 65% to 80% of the total corpus in equity and equity related instruments. Also, debt allocation is between 20% to 35%. One can invest in aggressive hybrid funds through SIP route and lump sum route.
Due to the high exposure to equity investments, the returns from these funds are greater than pure debt funds. At the same time, the risk associated with the funds is higher too. In a favourable market scenario, returns from these funds can be significant. At the same time, during unfavourable market conditions, the tables can turn around. Hence these funds are moderately high risk investments.
Also, the fund manager of the fund house plays an important role in these types of funds. The fund manager has the autonomy to design the investment strategy. They identify and invest in arbitrage opportunities to generate significant returns. Also, the stock selection varies from value to growth.
These hybrid equity funds are treated as equity funds. Hence are taxed like equity mutual funds. For a holding period less than one year, the gains are taxable at Short Term Capital Gains rate of 15% (plus 4% cess). And for a holding period beyond one year, the gains above INR 1,00,000 per annum are taxable at Long Term Capital Gains rate of 10% (plus 4% cess). Also, from FY 2020-21, the dividends are taxable in the hands of the investors as per their income tax slab rate. Additionally, dividends above INR 5,000 are subject to TDS of 10%. Moreover, equity funds are subject to securities transaction tax (SST) of 0.001% if investors sell the units.
Aggressive hybrid mutual funds are open ended equity oriented hybrid schemes. Predominantly they invest in equity and equity related instruments. Aggressive hybrid funds have the flexibility to invest in arbitrage opportunities in the market. When a fund manager is able to buy a security at a low price from one market and able to sell it at a higher price in another market, it means he has used an arbitrage opportunity to earn profits. When a fund manager takes advantage of price differences of one security in two different markets, then it is called arbitrage.
Aggressive hybrid funds’ portfolio manager can opt for a growth or value style of investing while selecting stocks for the portfolio. On the other hand, while choosing debt securities, they can invest in both short and long duration papers or in varying sensitive investments, i.e., papers with both high and low interest rate sensitivity.
Aggressive hybrid funds earn returns majorly from their equity investments as they constitute the majority of the portfolio. The debt part of the portfolio offers stability to the portfolio. However, with equity being the major asset, the aggressive fund is affected by market fluctuations. The debt securities constitute only a small portion of the portfolio and fail to bring stability in the volatile markets.
One can invest in aggressive hybrid funds through SIP route and lump sum route. The investors can calculate their SIP returns and lumpsum returns using online return calculators.
Aggressive hybrid funds invest a majority of their assets in equities. Therefore, a minimum investment horizon of 5-7 years is advised. These funds are prone to market fluctuations. They tend to give higher returns than conservative hybrid funds or balanced hybrid funds in market rallies. However, they are adversely affected when the market falls. Though they are considered better in terms of volatility than pure equity funds, the risk is still present.
Aggressive hybrid funds also invest a part of their portfolio in debt instruments. Though they are considered less volatile than equities, they are still prone to interest rate risk and credit risk. The falling or rising interest rate market scenarios can affect the portfolio. Similarly, the fund doesn’t put a restriction on the credit quality of the debt securities. The fund manager can invest in low rated securities to boost portfolio return, but the chances of default risk will be high.
Aggressive hybrid funds suit those investors who want to get a taste of market volatility but with moderate risk tolerance. Investors also need to have 5-7 years of the investment horizon. However, the investors need to understand that the risk in a fund also comes with the portfolio of equity. A portfolio with more weightage to mid cap and small cap stocks will be exposed to more risk than a portfolio with large cap stocks. Hence investors are advised to check the portfolio of the aggressive hybrid funds before they invest in them.
Aggressive hybrid funds are open ended equity oriented hybrid mutual funds. They majorly invest in equities (65-80%) and invest 20-35% in debt instruments. With a high equity investment and part debt investment, the fund’s performance is difficult to assess. The high equity component brings high returns and volatility to the portfolio. On the other hand, debt securities can be affected by credit and interest rate risk. But they can also provide stability to the portfolio.
Hence it is suggested that investors choose their asset allocation of equity and debt. And then choose the right funds to invest in each asset class.