Are you an extremely conservative equity investor who is looking to grow their investment without too much volatility over a long period? If yes, you might want to consider investing in aggressive hybrid schemes.
But, before we delve into aggressive hybrid funds, let’s understand what a hybrid fund is.
What is hybrid fund?
Hybrid funds are a type of mutual funds which is an amalgamation of equity and debt securities which is designed to meet the investment objective of the scheme. These funds achieve diversification across asset classes while avoiding concentrated risk. A perfect blend of two asset classes, these funds aim at giving returns similar to equity funds while trying to mitigate the risk like debt funds.
What is an aggressive hybrid mutual fund?
An aggressive fund is a type of hybrid fund. It is a balanced fund that primarily invests in stocks with a small proportion of allocation to fixed-deposits. As per the Securities and Exchange Board of India [SEBI], aggressive mutual funds have to invest a minimum of 65 to 80% of their assets in equity securities and the rest in debt instruments.
How do aggressive funds work?
Since the aggressive hybrid funds have a portion of a debt instrument, they are relatively less volatile and less risky than pure equity mutual funds. Therefore, an investor who can tolerate some level of risk in the investment can consider investing in aggressive hybrid funds. Since the fund’s concentrated allocation is of equity instruments, it can also be called as a hybrid equity fund.
Who should invest in aggressive hybrid funds?
Aggressive hybrid funds aim at generating current income along with wealth generation over a long duration of time through a hybrid portfolio composition. These funds have the of yielding higher returns at a relatively higher risk than regular balanced hybrid funds. The fund manager tries to offer consistent returns by investing primarily in equity securities and a small portion in debt and money market instruments.
Hence, aggressive hybrid funds are best suited for investors who have a moderate risk appetite and medium-term investment horizon, say at least 5 to 7 years. Also, an investor who wishes to invest in equities, but at the same time yearns to take a safer route can consider investing in these hybrid funds.
Budding investors who are new to the investing world can give these funds a try. Even within the same category, the level of risk among aggressive funds could vary depending on the existence of small-cap and mid-cap stocks.
While picking funds for investing in hybrid mutual funds, the qualitative and the quantitative aspects of the fund should be analysed. Opting for hybrid mutual funds can act as a gateway towards mutual fund investments. Happy investing!