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.
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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.
The significant characteristics of the fund include:
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.
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.
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.
You can invest in Aggressive funds for the advantages mentioned below:
These funds are taxed like equity funds:
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.
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