How does an aggressive hybrid equity fund work?

As mentioned above, an aggressive hybrid fund invests 65%-80% of total assets in the equity market and the remaining in debt. The debt portion may be invested in short-term money market instruments such as treasury bills or long-term instruments such as government bonds, corporate bonds, etc. 1. Bull markets When the equity markets are doing well, the percentage of the equity component will rise. During such occasions, if the equity component is nearing the 80% mark, the fund manager will sell equities and rebalance the portfolio. Even during times when the fund manager feels equities are richly valued, they may book profits in equity. The equity sale proceeds are invested in debt instruments to maintain the portfolio specified equity-debt balance. 2. Falling markets When the markets fall sharply, the equity component will go down. During such times, when equities are available at attractive valuations, the fund manager may sell debt securities. The debt sale proceeds are invested in equities to increase the equity component. In this manner, the fund manager does the portfolio rebalancing as per market conditions. 3. Model aggressive hybrid portfolio Let us see the performance of a model aggressive hybrid portfolio. Let us assume an individual invested Rs 10,000 in a combination of the Nifty 50 Index (equity component) and Nifty 10-year Benchmark G-Sec Index (debt component). The asset allocation is 65% equity component and 35% debt component. The ten-year (30 April 2011 to 30 April 2021) performance of this portfolio will be as follows.

What are the Benefits of investing in an aggressive hybrid fund?

While aggressive hybrid funds do have their benefits, you should choose a fund carefully for investment. As there is investment in two asset classes (equity and debt), and there may be regular portfolio management, the fund management expenses may be high. When choosing a fund for investment, you should compare funds on various parameters, including a lower expense ratio. 1) Portfolio diversification An aggressive hybrid equity fund gives you exposure to two asset classes (equity and debt) through a single scheme - although the equity portion is higher than the debt portion. 2) Portfolio rebalancing with tax efficiency The fund manager does the portfolio rebalancing as per market conditions. However, the rebalancing done within the scheme does not have any capital gains tax implications for the scheme investors. 3) Relatively lower risk and volatility compared to pure equity funds Since the fund has a low debt component and a high equity component, it is relatively less risky than a pure equity fund. Also, the debt component provides stability against stock market volatility. 4) Taxation of an equity fund As the equity component of the fund is 65% or higher, it is treated as an equity fund and taxed accordingly. The taxation of an equity fund is more favourable than a debt fund.

Should you invest in aggressive hybrid funds?

1) Your investment time horizon is at least three years If you are investing for financial goals where the investment time horizon is at least three years, you may consider aggressive hybrid funds. For long-term financial goals such as building a corpus for a child’s higher education or your retirement, you may allocate some investment in aggressive hybrid funds. The magic of compounding works over time. 2) You are a young first-time investor Young first-time investors usually have a high risk appetite. If you are such an investor with an aggressive risk profile, you may consider investing in aggressive hybrid funds. These funds will give you high equity exposure. But due to the debt component, they are still relatively less risky and volatile than pure equity funds. Long-term wealth creation with relatively less risk Aggressive hybrid funds are a good investment vehicle to generate inflation-beating high returns. They give you high exposure to equity (65% or more). Yet, due to the debt component, they are relatively less risky than pure equity funds. Also, the volatility in aggressive hybrid funds is lesser than in pure equity funds. To conclude, an investor may choose to invest in aggressive hybrid funds to generate long-term wealth with relatively less risk and volatility than that associated with pure equity funds.

Aggressive hybrid equity fund: Should you invest your money in this type of mutual fund?

Date : 12/09/2022
Read: 7 mins

Asset allocation requires investors to diversify their investment portfolios into equity, debt, gold, etc. But managing investments in different financial products can be a hassle. An aggressive hybrid fund provides you with a combination of equity and debt in a single mutual fund scheme.

Historically, equities have given inflation-beating high returns and created wealth for investors. However, equities are also prone to sharp downfalls from time to time. During such times, if you have some portfolio allocation to debt, it acts like a shock absorber and cushions the impact of the equity market fall. Aggressive hybrid funds can provide investors with this combination of equity (for growth) and debt (for stability). In this article, we will learn about aggressive hybrid funds, their investment strategy, the returns they offer, and whether you should invest in them. What is an aggressive hybrid fund? An aggressive hybrid fund is an open-ended hybrid mutual fund scheme that predominantly invests in equity and equity-related instruments. They have two parts: Equit...

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Aggressive hybrid equity fund: Should you invest your money in this type of mutual fund?

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Aggressive hybrid equity fund: Should you invest your money in this type of mutual fund?

Aggressive hybrid funds: Are they worth your money? Read this expert article to find out whether you should invest or not

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