Hybrid funds work in the grey area between pure equity and pure debt funds. There are many ways to create a hybrid scheme that leverages investment opportunities in both asset classes. Most hybrid funds vary the percentage of funds allotted to equity to achieve the fund’s objectives. However, to create a clear demarcation between a balanced hybrid fund with up to 60% exposure to equity and those with a higher exposure, SEBI created a new hybrid fund category called Aggressive Hybrid Fund.
Here, we will explore the Aggressive Mutual Funds and talk about some important things that you need to know about them.
List of Aggressive Mutual Funds
- Quant Absolute Fund Direct Growth
- HDFC Hybrid Equity Fund Direct Plan Growth
- Groww Aggressive Hybrid Fund Direct Growth
- Edelweiss Aggressive Hybrid Fund Direct Growth
- Canara Robeco Equity Hybrid Fund Direct Growth
- JM Aggressive Hybrid Fund Direct Growth
- Mahindra Manulife Aggressive Hybrid Fund Direct Growth
- Kotak Equity Hybrid Fund Direct Growth
- Mirae Asset Aggressive Hybrid Fund Direct Growth
- UTI Aggressive Hybrid Fund Direct Fund Growth
What are Aggressive Funds?
Aggressive Mutual Funds are hybrid funds that invest between 65%-80% of their total assets in equity and equity-related instruments and the balance 20%-35% in debt securities and money market instruments. Usually, hybrid funds with a balanced approach are not permitted to take advantage of any arbitrage opportunities, even if the fund manager is certain to make good returns.
Note: Arbitrage is the process of buying a security in one market at a lower price and selling it in another market at a higher price. The aim is to gain from the difference in price.
Most aggressive mutual funds offer much higher autonomy to the fund managers than balanced funds. Therefore, Aggressive Funds can take advantage of arbitrage opportunities. Further, the fund manager can opt to follow the growth or value investing style while selecting stocks. Also, while selecting debt securities, the fund manager has the option to choose between securities with varying sensitivity to changes in interest rates.
Features of an Aggressive Fund
The significant characteristics of the fund include:
- Returns and Tenure: These funds are well-suited for medium-term objectives, although volatility and market corrections may impact profitability.
- Portfolio of Investment: These funds have a high-risk profile due to their equity-heavy concentration. As a result, they are unsuitable for risk-averse investors.
- Risk: As the name says, these funds tend to be highly risky in the mutual fund environment.
Types of Aggressive Mutual Funds
There are mainly two kinds of aggressive funds:
Aggressive Growth: These funds primarily invest in growth assets with little allocation to income assets. They are intended to generate large sums of money. They are appropriate for investors willing to tolerate a higher level of investment risk.
Aggressive Hybrid: These funds make investments in both stocks and debt products. They have a 65-80% equity allocation. They are appropriate for customers who are in the accumulation phase and desire an automatic asset allocation and rebalancing solution.
How Does an Aggressive Mutual Fund Work?
For stability, aggressive growth funds balance investments in equities and debt, with a minimum of 20% dedicated to debt and FD-like instruments (as per SEBI standards). While equities generate long-term value, debt instruments give income stability.
Aggressive hybrid mutual funds seek to combine both advantages into a single investment. Patience and a long-term view are required to obtain favourable results because the equity component thrives during market upswings, and debt investments provide a cushion during market downturns.
How Should You Invest in an Aggressive Mutual Fund ?
You can invest in Aggressive funds through Groww; simply follow the steps mentioned below:
Step 1: Download the Groww application from Play Store or App Store.
Step 2: Sign up with your details and complete the KYC process.
Step 3: Choose suitable aggressive funds to start investing.
Why Should You Invest in Aggressive Mutual Fund?
You can invest in Aggressive funds for the advantages mentioned below:
- They are diverse
Debt and stocks are two asset classes used in the portfolios of aggressive funds. Asset categories with high risk and high reward are also featured, as are asset categories with low risk and low reward. As a result, these programmes offer variety. Even if the equity component yields significant gains, debt securities can protect investors' portfolio value during a correction.
- Less Volatile than Equity Funds
When the values of the underlying securities fluctuate, the performance of pure equity funds is affected by changing market conditions. Aggressive funds, on the other hand, are less affected by market volatility because they invest up to 35% of their assets in debt instruments.
- You Can Avail Taxation Benefits
An aggressive mutual fund will allocate up to 35% of its assets to debt and at least 65% to stocks. Because a large component of their portfolio consists of fixed-income assets, they are nevertheless entitled to profit from equity taxation under current tax legislation. - Rebalancing of the Portfolio
Due to SEBI regulations, aggressive mutual funds follow tight asset allocation policies. Fund managers can modify the fund's portfolio in response to market swings. They can increase their debt instrument investments to hedge risk in a weak market while staying within the predetermined allocation percentage range. In contrast, fund managers may increase stock investments in a bull market to maximize earnings.
Taxation Rules of Aggressive Mutual Funds
These funds are taxed like equity funds:
- Short Term Capital Gains (STCG) and are taxed at 15%.
- Long Term Capital Gains (LTCG) are not taxed if the profits fall under one lakh and are taxed at 10% if the profits are more than one lakh.
FAQs
Q1. What is aggressive mutual fund?
An aggressive growth fund is a mutual fund that invests in growth business stocks to generate capital gains. Investments in these funds are in firms with significant growth potential but also higher risk.
Q2. What are the two kinds of aggressive funds?
The main two types of aggressive funds are Aggressive Growth Funds and Aggressive Hybrid Funds.
Q3. Are aggressive funds riskier than equity funds?
Since aggressive funds have a 20-35% exposure to debt securities and money market tools - they are less hazardous than pure equity funds. However, because aggressive funds contain a considerable equity component, they still somewhat have a high risk.
Q4. What is the advantage of investing in aggressive mutual funds?
Asset categories with high risk and high reward are also featured, as are asset categories with low risk and low reward. As a result, these programmes offer variety. Even if the equity component yields significant gains, debt securities can protect investors' portfolio value during a correction.
Q5. For how long do I need to stay invested in aggressive funds?
An investor must stay invested for at least three years to profit from these investments.
Disclaimer - Mutual Fund investments are subject to market risks, read all scheme-related documents carefully.
