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Aggressive Hybrid funds

  • Shruthika Priscilla
  • Jan 12 2022
  • 9 minutes
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Mutual funds have vast investment options for every category of investors whether they are risk-averse or aggressive investors. Risk-averse investors tend to limit their exposure in the mutual fund market and take lower risks and also enjoy limited but relatively stable returns from their investment. Aggressive investors on the other hand tend to take higher risks in their investments and invest more aggressively with the corresponding higher returns expectations.

What are aggressive hybrid funds and how do they work?

Investors who want to increase their returns through an aggressive investment strategy but at the same time want a small component of stable returns can opt for aggressive hybrid funds. These funds are a type of hybrid funds where the dominant investment (approximately 65% to 80% of the fund) is in the equity and equity-related instruments. The balance of the fund is in the debt instruments or money market instruments. 

The key benefit of aggressive hybrid funds is generating increased returns at the same time reducing risks on account of diversification of the asset class over the long duration of the fund. Another added advantage of aggressive hybrid funds is the benefit of arbitrage in the market. This benefit allows the fund manager to generate higher returns on account of price differences between different markets. Hence, the ability of the fund managers to pick quality investments that can meet investor expectations is crucial in aggressive hybrid funds.

Who are the target investors for aggressive hybrid funds?

These funds are ideal for aggressive investors with a moderately high-risk appetite. Investors looking to increase the returns with increased exposure in the mutual fund market can invest in aggressive hybrid funds and gain the benefit of higher returns as against plain vanilla balanced funds. These funds are ideal for wealth-building over a long period of time. The usual investment duration for investment in these funds is approximately from 5 to 7 years. 

Young investors in their 20s can invest in aggressive hybrid funds to increase their wealth over time with increased exposure in the mutual fund market. Such investors can start with smaller amounts to gradually build their portfolio of aggressive hybrid funds. It is ideal to review and analyse the performance of the fund over the past few years before making an investment decision to ensure that the portfolio is of quality investment instruments that can generate higher returns in the long run. 

What are the pros and cons of aggressive hybrid funds?

The various benefits and risks associated with aggressive hybrid funds are discussed hereunder.

  1. Pros

Given below are the advantages of investing and aggressive hybrid funds

  1. Capital appreciation

The prime advantage of aggressive funds is capital appreciation in the long term. This is on account of increased equity exposure which has the potential to provide higher returns than any other investment class.

  1. Diversification to equity and debt market 

Aggressive hybrid funds invest in both the equity and debt market. This diversification benefits investors as they get the benefit of both the markets. Investors do not have to invest in separate funds in equity and debt class which helps in reducing the expense ratio providing higher net returns. Investors can increase their investment in quality equity instruments at the time of decreased market trends.

  1. Balanced risk

Another key advantage of aggressive hybrid funds is the balance risk. The risk of investment in equity and equity-related instruments is highest whereas debt instruments have limited exposure. Aggressive hybrid funds help the investors balance the risk of the equity market against the debt market providing the net benefit of reduced risks to the investors.

  1. Cons

The risk of investment and aggressive hybrid funds are detailed below

  1. The risk associated with the debt market

Aggressive hybrid funds have a portion of debt and debt-related instruments in the fund. This exposes the investor to the risk associated with the debt market like the credit risk interest rate risk as well as reinvestment risk and liquidity risk. These risks, although limited, can potentially impact the investment and reduce the net returns of the investors.

  1. The risk associated with equity markets

The risk related to equity markets is the extreme volatility of the instruments to market fluctuations. This volatility can potentially wipe out the capital investment of the investors. It is there for prudent to invest in quality aggressive funds that have a proven track record and investment strategy of fund managers that are in line with that of the investor expectations

  1. Limited exposure to debt market 

Debt markets provide limited but relatively stable returns and the risks associated are also lower as compared to equity markets. However, under aggressive hybrid funds, the exposure to the debt market is limited to approximately 20% to 40% maximum of the total fund. This further limits the earning potential through the debt market and may impact the net returns of the investors.

How are aggressive hybrid funds taxed?

Hybrid funds invest in equity funds between 65 to 80% of the total fund. Therefore the taxation of these funds is also in line with that of equity-oriented funds. These funds are subject to capital gains tax as well as tax levied on the dividend income. 

The details of the tax levied on aggressive hybrid funds are tabled below. 

Type of gainDuration/period of holdingTax rate
Short term capital gainsLess than 1 year or 12 monthsTaxed at the rate of 15% plus surcharge
Long term capital gainsMore than 1 year or 12 months10% without indexation (exempt up to Rs.1,00,000)

In addition to the capital gains tax, the dividends received from aggressive hybrid funds are also taxed in the hands of the investors. These dividends are added to the taxable income of the investor and taxed at the applicable income tax slab rates depending on the gross total income. 

What are the things to be considered while investing in aggressive hybrid funds?

The several factors to be considered while investing in aggressive hybrid funds are mentioned below.

  1. Risks-return expectations

The risk and return expectations of the investor are among the key parameters while making an investment decision in aggressive hybrid funds. The return earning potential is higher due to the presence of equity instruments along with limited risks on account of debt funds.

  1. Expense ratio

The expense ratio of investment in equity funds and debt funds separately will increase the overall cost of investment for the investors. Aggressive hybrid funds have the equity and debt funds together and the overall expense ratio is limited in comparison to individual funds. An increased or higher expense ratio will reduce the net returns of the investors. Hence, investors should opt for funds that have a relatively lower expense ratio and provide higher returns along the way. 

  1. Investment horizon

The investment horizon of the investors of aggressive hybrid funds should be medium to long term i.e., approximately 5 to 7 years. An investment of this duration will help them enjoy the benefit of potentially good returns as compared to other investments in similar categories like bank deposits, etc.

  1. Investment goals

Aggressive hybrid funds are quite a good option to build a corpus fund that can help in realizing medium to long term investment objectives. These goals can range from building an education fund to an emergency fund as well as a travel fund. 

Top aggressive hybrid funds 

The top funds under this category are mentioned below,

Canara Robeco Equity Hybrid Fund

Canara Robeco Equity Hybrid Fund belongs to the aggressive hybrid fund category. The fund is an open-ended fund launched in 2013. The details of this fund are mentioned below.

ParticularsDetails
Fund managerAvnish JainShridatta BhandwaldarEnnette Fernandes
Launch date1st January 2013
Minimum SIP investmentRs. 1,000
Expense ratio0.65%
RiskVery high

The returns provided by the fund as of 29th December 2021 are tabled below

Period6 months1 yr3 yrs5 yrsSince launch
Returns8.65%24.20%19.11%17.30%15.64%

Edelweiss Aggressive Hybrid Fund

This is a direct plan belonging to the aggressive hybrid fund category. The fund was launched in the year 2013 and the basic details of the fund are given below.

ParticularsDetails
Fund managerBharat LahotiDhawal DalalBhavesh Jain
Launch dateJanuary 07, 2013
Minimum SIP investmentRs. 1,000
Expense ratio0.46%
RiskVery high

The returns provided by the fund as of 29th December 2021 are tabled below

Period6 months1 yr3 yrs5 yrsSince launch
Returns10.71%29.18%18.13%16.38%15.09%

SBI Equity Hybrid Fund

This fund comes from the fund house of SBI Mutual funds in 2013. The details of the fund are given below.

ParticularsDetails
Fund managerR. SrinivasanDinesh Ahuja
Launch date1st January 2013
Minimum SIP investmentRs. 1,000
Expense ratio0.86%
RiskVery high

The returns provided by the fund as of 21st August 2021 are tabled below

Period6 months1 yr3 yrs5 yrsSince launch
Returns9.13%24.26%17.17%16.10%16.07%

Conclusion 

Aggressive funds are ideal funds for new and young investors that have a higher risk appetite and some surplus funds that can be invested in aggressive hybrid funds. Such investment will help them in generating higher returns which effectively results in wealth building in the long term.

FAQs

1. What is the usual investment horizon for aggressive funds?
A. The usual investment horizon for aggressive hybrid funds is 5 to 7 years which helps them in realizing the full potential of such funds and leads to increased wealth building. 

2. What is the minimum equity investment in aggressive hybrid funds?
A. The minimum equity investment in aggressive hybrid funds is approximately 65% to 80% of the total fund value.

3. What is the rate of taxation on long term gains of aggressive hybrid funds?
A. Long term gains on aggressive hybrid funds are taxed at the rate of 10% after an initial exemption of up to Rs. 1,00,000.

4. How are the dividends from aggressive hybrid funds taxed?
A. Dividends from aggressive hybrid funds are taxable in the hands of the investor and taxed at the applicable income tax slab rates.

5. How to invest in aggressive hybrid funds through the Finity app?
A. The steps to invest in aggressive hybrid funds are mentioned below.

  • Login to the Finity account using login credentials
  • Select the tab ‘Hybrid funds’
  • From the next page select ‘aggressive hybrid funds’.
  • Review and analyze the available funds and select the fund that best suits the investor profile.
  • Select the mode of investment (SIP/Lumpsum)
  • Make the payment of the amount to be invested and the fund will be displayed in the portfolio section on the homepage of the app.
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