Aggressive Hybrid Mutual Funds
Aggressive Hybrid funds are just another moniker for Equity Oriented Hybrid Funds. By concept and method, Hybrid funds are called so because they invest money in different types of asset classes, like equity and debt assets. The allocation of funds to equity-based securities is higher than other securities.
The SEBI mandates require that Aggressive Hybrid Funds must invest between 65% and 80% of the funds in equity or related market securities. The debt component in these funds is typically kept low, between 20% and 35%. This is because all securities have their unique risk profiles.
Who Should Invest in Aggressive Hybrid Mutual Funds?
Aggressive Hybrid Funds returns depend largely on how the equity instruments are performing in the market. For this reason, it is best if the following people invest in this type of funds:
- Investors willing to invest in funds that run a moderately high risk. Since market equities are volatile, and aggressive hybrid funds invest almost 80% of the total value in equities, the entire quantum could be affected adversely if the market crashes
- Some new investors can try out the market thrill with aggressive hybrid funds, as they don’t completely bank on equity and offer some respite by investing a third of the quantum in debt instruments
- Those looking to earn some income from their market investments can consider investing in aggressive hybrid mutual funds. Additionally, capital appreciation income is a good advantage that aggressive hybrid mutual funds provide
- For the investors looking to create wealth from their investment, these funds are ideal if the tenure is 3 years or higher. Aggressive hybrid mutual funds perform better in the longer run – for a period of, say, 5 years, you can consider an investment for the mid-range future goals
For the investors who are very close to their retirement age, aggressive hybrid funds make good sense, as these funds provide a way to quickly build up to a good retirement corpus. If you are 5 years away from retirement, consider starting investment in aggressive hybrid funds. They offer good growth opportunities with balanced risk
Features of Aggressive Hybrid Mutual Funds
Aggressive Hybrid funds have become a popular choice of investment because of the following attractive and logical reasons.
- Aggressive hybrid funds are a subset of hybrid funds. Hybrid funds deal in various types of market securities. Aggressive hybrid funds have about 80% of the funds invested in equity instruments, while the rest goes into debt or other market securities
- Aggressive hybrid funds returns work in two ways, because of the way the fund is split two ways between securities. The portion that goes into equity-based investments gives aggressive performance based on the market valuation of instruments; whereas, the debt portion of the fund works as a stabilizer and helps generate a stable income from the investment
Since aggressive hybrid mutual funds invest in two different asset classes that have no correlation, it provides some cushioning from a market crash – the investor doesn’t lose all their money in one go
Factors to consider while investing in Aggressive Hybrid Funds
Here is a list of factors you can consider before investing in Aggressive Hybrid funds.
Performance of Aggressive Hybrid Mutual Funds
Aggressive hybrid mutual funds can generate a high return for investors as they largely depend on equity-linked schemes. For this reason, it is best for the following investors:
- Investors who are willing to invest in funds run a moderately high risk. Aggressive hybrid mutual funds invest 80% of their corpus in equity-linked schemes, making them highly volatile to market conditions.
- Investors who want to earn capital appreciation income or regular dividend income can think of investing in aggressive hybrid funds.
- Investors looking to want to generate long-term capital gains through their investments. Aggressive hybrid funds are ideal if the tenure is 3 years or higher. The longer one stays invested in these funds, the higher the chances of generating a high return since the volatility to market risks are taken care of.
- Investors who are very close to their retirement age can also consider aggressive hybrid funds, as these funds provide a way to build up a good retirement corpus quickly. If you are 5 years away from retirement, consider starting an investment in aggressive hybrid funds.
Expense Ratio
When investing in a mutual fund, it is critical to analyze the fund’s expense ratio. SEBI has set expenditure ratio caps for mutual funds based on type and category. However, investors must choose funds with the lowest expense ratio.
Asset Allocation
Aggressive Hybrid Mutual Funds allocate about 65% – 80% of their corpus to high-risk equity-linked investments, while the remaining 20% – 35% equity is allocated to debt securities or money-market instruments. Since the focus is on generating a high return, the aggressive strategy has high associated risk but is lower than those who invest purely in equity funds. So investors should ensure that they properly plan their investment goal when investing in this scheme.
Taxability
The taxation of aggressive hybrid funds depends on the quantum of equity investments. Described below are the tax implications of aggressive hybrid funds returns.
- Long-term capital gains tax: Applicable if you have invested in aggressive hybrid funds with a tenure of one year or above, your capital gains from the fund are liable to be taxed at 10%. However, if the gains remain below ₹1 lakh, then the capital gains tax is exempt for the ongoing financial year.
- Short-term capital gains tax. Applicable if your aggressive hybrid mutual funds have been held for less than one year, all the proceeds from the fund will be taxed at a flat rate of 15%. There will be no exemptions from the short-term capital gains tax
Other types of hybrid funds are taxed differently for capital gains – long-term or short-term.
Investment Goal
Depending on the investment goal, aggressive hybrid mutual funds are ideal for those who have long-term financial goals like a child’s marriage, education, or retirement. Given the volatility and risk factor, the fund is not ideal for short-term financial goals, especially ones that depend on a stable return, like purchasing a car, house, etc.
Investment Horizon
The investor’s age and investment horizon are also vital when investing in aggressive hybrid funds. For young investors who want long-term wealth creation, these funds are the ideal option since they are relatively open to taking a risk in the short term. However, those older or close to retirement who expect a safer investment option should consult with a financial advisor before investing.
Direct or Regular Plan
You can also look into direct Vs. Regular plans when investing in any mutual fund. If you plan to invest in a mutual fund via a third-party agent, you will have to pay a part of the commission, which leads to lower returns compared to direct plans. Direct plans allow investors to make investment decisions on their own, needing them to pay no additional commissions and result in a lower expense ratio.
Taxability of Aggressive Hybrid Mutual Funds
The taxation of aggressive hybrid funds depends on the quantum of equity investments. Described below are the tax implications of aggressive hybrid funds returns.
- Long-term capital gains tax. If you have invested in aggressive hybrid funds with a tenure of one year or above, then your capital gains from the fund are liable to be taxed at 10%. However, if the gains remain below ₹1 lakh, then the capital gains tax is exempt for the ongoing financial year
- Short-term capital gains tax. If your aggressive hybrid mutual funds have been held for a period of less than one year, then all the proceeds from the fund will be taxed at a flat rate of 15%. There will be no exemptions from the short-term capital gains tax
Other types of hybrid funds are taxed differently for capital gains – whether they are long term or short term.
Risks Involved in Aggressive Hybrid Funds
Hybrid funds, in general, are considered to be less risky than pure equity funds. This is because of the fact that part of the fund component is invested in market instruments other than equities. Equities are a highly volatile (but lucrative, at the same time) market instrument. Investing an entire fund into it is a high-risk move because with the market movement, the game changes. Equity instrument values may rise or fall, even drastically, when the market corrects.
In such scenarios, introducing some percentage of debt assets in the fund helps to absorb the fall in the market. Since debt instruments are entirely different in nature vis-à-vis equity instruments, the market correction doesn’t affect this percentage of the investment as much. The shock of loss is substantially reduced in this manner.
With that said, when the market jumps, the equity share of the aggressive hybrid fund proportionately increases the investment value, delivering high returns to the investors. The debt component here may remain the same, more or less, and fetch interest from the companies invested in. This is the primary reason why aggressive hybrid mutual funds are recommended for those with a moderate risk appetite.
Advantages of Aggressive Hybrid Mutual Funds
Mutual funds yield more favourable results when they are hybrid in nature. Let’s see some of the benefits, listed as under:
- Aggressive hybrid mutual funds enable a good degree of diversification in the portfolio. These funds have a significantly high equity component – they can be broken up into small-cap, mid-cap and large-cap components for generating variable aggressive hybrid funds returns
- Investment in a single aggressive hybrid fund enables you to cash in on the benefits of two asset classes with a single investment. You don’t even have to monitor anything. The fund manager works to decide how much of the fund component goes into equity, and how much into debt
Aggressive hybrid funds allow the fund manager to dynamically adjust asset allocation based on how the market is behaving. This capability of the fund makes it extremely favourable to cut loss risks and take maximum advantage of the investment.
Best Aggressive Hybrid Mutual Funds
Quant Absolute Fund
Quant Absolute Fund is an aggressive hybrid scheme that was launched on 01/01/2013. The scheme has INR 500 Crores in AUM as of 30/06/2022 and is a small fund in its category. The fund’s expense ratio is 0.56%, which is lower than other funds in its category, and the fund has a 79.41% allocation in equity while the 13.39% is invested in debt.
The fund invests using the CRISIL Hybrid 35+65 aggressive benchmark, and the top five holdings are GOI, ITC, ICICI Bank, State Bank of India, and UPL.
- Minimum Investment: SIP INR 1000 & Lumpsum INR 5000
- Fund’s Performance: The Quant Absolute Fund has delivered average annual returns of 17.94% since inception, while it has given 20.09% returns in the last 1-year.
Edelweiss Aggressive Hybrid Fund
The Edelweiss Aggressive Hybrid Fund invests in the CRISIL Hybrid 35+65 Aggressive and has existed since 01/01/2013. The fund has INR 289 Crores in AUM as of 20/06/2022 and has an expense ratio of 0.51%, which is less than other aggressive hybrid funds. The fund has allocated 68.69% in equity, while 32.63% is allocated to debt instruments.
The fund invests in the financial, energy, technology, and healthcare sectors, while the top five holdings are in GOI, National Housing Bank, ICICI Bank, HDFC Bank, and Reliance Industries.
- Minimum Investment: SIP INR 500 & Lumpsum INR 5000
- Fund’s Performance: The Edelweiss Aggressive Hybrid Fund has given 10.74% returns in the last 1-year period and 13.2% since inception.
ICICI Prudential Equity & Debt Fund
ICICI Prudential Equity & Debt Fund is a hybrid scheme launched on 01/01/2013 and has an AUM of INR 19,614 Crores as of 30/06/2022. The scheme invests in CRISIL Hybrid 35+65 Aggressive benchmark and has an expense ratio of 1.24%, higher than other aggressive hybrid funds. The scheme has allocated 68.33% to equity and 22.71% to debt.
The fund invests mainly in the financial, energy, technology, communication, and automobile sectors, while the top 5 holdings are in GOI, National Thermal Power, Bharati Airtel, Infosys, and Oil & Natural Gas Corp.
- Minimum Investment: SIP INR 100 & Lumpsum INR 1000
- Fund’s Performance: The fund has given its investors a return of 20.18% in the last 1-year period and average annual returns of 16.81% since its inception.
Canara Robeco Equity Hybrid Fund
Canara Robeco Equity Hybrid Fund is an aggressive fund that was launched on 01/01/2013 and has INR 8033 Crores worth of AUM as on 30/06/2022. The fund has an expense ratio of 0.59% and currently has 71.55% allocated to equity-linked securities, while the remaining 19.56% is allocated to debt.
The fund’s top holdings include GOI, ICICI Bank, Infosys, State Bank of India, and Reliance Industries, with significant investments in the automobile, financial, technology, and energy sectors.
- Minimum Investment: SIP INR 1000 & Lumpsum INR 5000
- Fund’s Performance: This fund has given its investors an average annual return of 14.68% since inception, and the last 1-year return has been 6.14%.
SBI Equity Hybrid Fund
SBI Equity Hybrid Fund is an open-ended scheme using the CRISIL Hybrid 35+65 Aggressive benchmark index. The fund has INR 53,018 Crores worth of Assets Under Management (AUM) as on 30/06/2022. Currently, the fund has a 70.20% allocation to equity and 16.26% to Debt, while it has an expense ratio of 0.83%, which are both excellent indicators compared to other aggressive hybrid funds.
The fund’s top holdings include ICICI Bank Ltd., Infosys Ltd., GOI, Reliance Industries Ltd., and Bajaj Finance Ltd.
Minimum Investment: SIP INR 500 & Lumpsum INR 1000
Fund’s Performance: The SBI Equity Hybrid Fund has recently delivered average annual returns of 15.18% since inception while giving a 1-year return of 7.95%.
HDFC Hybrid Equity Fund
HDFC Hybrid Equity Fund is an aggressive hybrid mutual fund with INR 18284 Crores AUM as on 30/06/2022, which is a medium-sized fund in its category. The fund has an expense ratio of 1.12%, with an asset allocation of 72.69% in equity and 20.06% in debt.
A significant portion of the fund gets invested in the financial, energy, capital goods, technology, and construction sectors, with the top holdings being in ICICI bank, GOI, Reliance Industries, Infosys, and HDFC bank.
Minimum Investment: SIP INR 300 & Lumpsum INR 5000
Fund’s Performance: The HDFC Hybrid Equity Fund has generated an annual average return of 12.14% since its inception, with the 1-year return being 11.15%.
Baroda BNP Paribas Aggressive Hybrid Fund
An aggressive hybrid scheme provided jointly by BNP Paribas and Baroda Bank, the Baroda BNP Paribas Aggressive Hybrid Fund was established on 17/03/2017 and had an AUM of INR 771 Crores as of 30/06/2022. The fund has an expense ratio of 0.63%, which is less than other aggressive funds and has allocated 75.49% in equity and 22.96% in debt.
The fund’s significant holdings include ICICI Bank, HDFC Bank, Reliance Industries, Infosys, and GOI.
Minimum Investment: SIP INR 500 & Lumpsum INR 5000
Fund’s Performance: The Baroda BNP Paribas Aggressive Hybrid Fund has generated 14.15% average annual returns since inception while giving its investors a return of 8.5% in the last 1-year period.
Kotak Equity Hybrid Fund
The Kotak Equity Hybrid Fund is an aggressive hybrid mutual fund offered by Kotak Mahindra AMC. The fund was launched on 01/11/2014 and has grown today to have an AUM of INR 2748 Crores as on 30/06/2022. The fund invests using the NIFTY 50 Hybrid Composite Debt 65:35 Benchmark and has an expense ratio of 0.64%, less than others in its category. The fund’s current allocation is 72.87% in equity instruments, while 21.16% is in debt.
The fund’s top five holdings are GOI, ICICI Bank, Infosys, HDFC Bank, and State Bank of India.
Minimum Investment: SIP INR 1000 & Lumpsum INR 5000
Fund’s Performance: The Kotak Equity Hybrid Fund has generated annual average returns of 12.93% since inception and has given its investors 12.28% in the last 1-year.
Bank of India Mid & Small Cap Equity & Debt Fund
Bank of India Mid and Small Cap Equity & Debt Fund is an aggressive hybrid fund that provides capital appreciation and income distribution to its investors. The fund was established on 20/07/2016 and focuses on NIFTY MidSmallCap 400 TRI: 70% and CRISIL Short Term Bond Fund Index: 30%. Currently, 79.4% of the fund is allocated to equity holdings, 7.8% to corporate debt schemes, and 7.3% to money market instruments.
The top 5 investments of this fund are in Punjab National Bank, Apollo Tubes, Linda Industries, Varun Beverages, and Balrampur Chini Mills.
Minimum Investment: SIP INR 500 & Lumpsum INR 1000
Fund’s Performance: Since its inception, the fund has provided 11.9% returns to its investors, while the previous 1-year return is -1.7%.
Tata Hybrid Equity Fund
The Tata Hybrid Equity Fund is an aggressive hybrid fund that was launched on 01/01/2013. The scheme has INR 3190 crores AUM as on 30/06/2022 and is a medium-sized fund in its category. The fund’s expense ratio is 1/04%, which is close to what other aggressive funds offer, and has an allocation of 77.74% in equity, while 17.48% is allocated to debt investments.
The fund uses the CRISIL Hybrid 35+65 Aggressive Benchmark when investing, and the primary sectors are being invested in finance, technology, consumer products, energy, and automobile. The top vice holdings of the funds are ICICI Bank, State Bank of India, Reliance Industries, HDFC Bank, and Tata Consultancy Services.
- Minimum Investment: SIP INR 500 & Lumpsum INR 5000
- Fund’s Performance: The average annual return of the fund since inception has been 13.54%, while in the last 1-year it has been 7.69%.
Frequently Asked Questions
No, there is no lock-in period for aggressive hybrid mutual funds. Investors can redeem their funds at any time. However, if the funds are redeemed within one year of investing, there is a charge on the exit load that depends on the fund house.
An aggressive hybrid mutual fund is an excellent investment option for those with a long-term investment tenure. It is also essential to know that these funds do not promise any minimum return guarantee. So the ideal duration of investing in aggressive hybrid funds is at least 5 – 7 years.
As per SEBI mandates, an aggressive hybrid mutual fund is an open-ended mutual fund that invests in equity and debt instruments. The fund has to allocate 65% – 80% in equity or equity-linked instruments and 20% – 35% for debt.
Due to the high exposure to equity-linked instruments, the risk rating for an aggressive hybrid fund is on the higher side. These funds carry a high to medium risk, depending on the fund manager’s allocation. These funds have high volatility during unfavourable market conditions.
Since aggressive hybrid funds invest 65%-80% in equities, these funds are taxable under the Income Tax Act 1961 and are taxed at the time of redemption on the profits gained. The gains are classified under Short Term Capital Gains (STCG), which are applicable for a holding period of less than 12 months and taxed at 15%, while the gains on a holding period above 12 months or more are taxed at 10% under LTCG (Long Term Capital Gains).