Aggressive funds are a sub-category of hybrid funds that primarily invest in equity shares of companies. Their portfolio comprises debt instruments that provide stability when the market is underperforming. The main objective of these funds is to yield more significant returns than pure debt and debt-oriented hybrid schemes. The best aggressive mutual funds are known to be less risky in comparison to traditional equity funds. That said, they can deliver similar returns to equity schemes in the long run.
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Here are some features of the best aggressive mutual funds:
Asset allocation: As per rules of the Securities and Exchange Board of India (SEBI), aggressive mutual funds must invest at least 65% and a maximum of 80% in equity shares. Also, 20% to 35% of the fund corpus has to be allocated to debt instruments.
Risk-reward ratio: The best aggressive mutual funds 2021 are not as risky as pure equity schemes as they invest in fixed income-generating securities. Since the associated risk level is low, they generate lesser returns than equity funds. However, in the long term, there’s not much difference in the returns generated by these two types of schemes.
Short-term Capital Gains Tax: Capital gains earned by redeeming their units before one year from the date of purchase attract an (STCG) tax of 15% on them.
Long-term Capital Gains Tax: When investors sell their units before the completion of 1 year, profits are termed as long-term capital gains (LTCG). Gains exceeding Rs.1 lakh are taxed at 10%. However, proceeds of up to Rs.1 lakh are tax-free.
Aggressive mutual funds principally invest in equity shares. Hence, the associated risk is significantly high. Nevertheless, their portfolio also comprises debt instruments, which makes these funds less risky than regular equity funds. Thus, top aggressive mutual funds are suitable for investors who are seeking maximum capital appreciation without the risk level that is associated with equity schemes. That said, there are certain things they need to consider before allocating their savings to a fund. Let’s delve into these aspects.
Investment goal: When it comes to investing in any financial instrument, there’s no readymade solution as individuals have different financial objectives. While one investor may want to earn sizeable returns over a prolonged period, another might pivot towards maximum capital appreciation at the earliest. To meet these two goals, the choice of the scheme has to be different. Hence, investors must identify their financial goals before allocating their funds to any aggressive MF scheme.
Risk appetite: The portfolio of aggressive mutual funds mainly comprises stocks. Hence, the performance of these funds is impacted by volatile market conditions. Although the risk level is not as high as equity funds, investors can suffer significant losses. Hence, one must gauge his/her risk appetite to find out which is the best aggressive mutual fund for them.
Past performance of the fund: For investors, it is vital to evaluate the scheme’s past performance. By looking at the historical returns, they can understand whether a fund has been able to fulfil the objective it was set up to achieve. Also, they must make sure to compare its returns with that of other aggressive mutual fund schemes to find out which one is more likely to be the better option.
Expense ratio: This is a maintenance charge that a fund house imposes on investors to finance its operating and administrative expenses. This includes the salary of a fund manager. It is calculated as a small percentage of a scheme’s total assets and thus varies from one fund to another. Investors must compare the expense ratio of the best aggressive mutual funds to determine a suitable option.
Experience of the fund manager: A fund’s success depends on how well the fund manager uses his specialised skills and experience to manage a portfolio. They use various risk management techniques to evaluate investments. A fund manager with a proven track record and years of experience has a high chance of achieving the scheme’s main objective.
Regular or direct plan: Direct plans are offered by fund houses directly to investors. They do not involve distributors or brokers. Thus, fund houses do not have to pay any commission, which reduces the expense ratio. However, in the case of a regular plan, third parties are involved. Thus, the expense ratio of a regular plan is higher than that of direct plans, although they invest in the same assets.
Here are some key benefits of investing in the best aggressive mutual funds:
Diversification: The portfolio of aggressive funds comprises high-risk, high-reward as well low-risk, low-reward asset categories – debt and equity. Hence, these schemes offer diversification. While the equity component can generate high returns for investors, the debt securities can safeguard their portfolio value when there’s a correction.
Tax benefits: Aggressive mutual funds invest at least 65% in equity and up to 35% in debt instruments. As per tax laws, they can enjoy the benefits of equity taxation even though a sizable portion of their portfolio comprises fixed income-generating securities.
Less volatile than pure equity funds: The performance of pure equity funds is affected by volatile market conditions owing to price fluctuations of the underlying securities. Nevertheless, since aggressive funds also invest up to 35% of the assets in debt instruments, their performance is less impacted by market volatility.
Portfolio rebalancing: The asset allocation of aggressive mutual funds is stringent, owing to SEBI guidelines. However, fund managers can rebalance the fund’s portfolio as per market conditions. In a bearish market, they can increase investment in debt instruments to hedge risk while keeping the allocation % within the pre-specified limit. On the contrary, in a bullish market, fund managers can increase the investment in equity to maximise returns.
Investment route: Investors can allocate their funds to the best aggressive mutual funds via two modes – Systematic Investment Plan and lump sum. By opting for a SIP, individuals can pay a fixed amount at regular intervals to invest in a scheme of their choice. However, unlike a SIP, the lump sum route allows investors to allocate the entire amount at once.
Now let us jump and check about these top 10 mutual fund schemes.
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