Aggressive hybrid mutual funds are equity-oriented hybrid schemes. These mutual funds have exposure to debt as well as equity instruments in the ratio specified in the scheme’s investment objective. According to the rules, the maximum exposure to equity instruments can be up to 80 percent of the assets, while a minimum of 20 percent must go in debt instruments.
The main aim of spreading the investment in different avenues is to gather money and regular income in the long run. The strategy makes the investment less risky as compared to pure equity funds.
Who should buy aggressive hybrid funds?
These funds are a perfect fit in the portfolio of both beginner and experienced investors.
- First-time equity investors: Some investors want to begin investing in equities. However, they do not want to take the level of risk associated with pure equity mutual funds. Aggressive hybrid funds are suitable for such investors since having a particular percentage in debt ensures that the value of the investment does not fall as much as pure equity funds during market corrections.
- Investors with an investment horizon of 5 to 8 years: The allocation of aggressive hybrid funds is majorly in equities. Therefore, you must have a medium to a long-term goal of maintaining your portfolio. It is ideal to start a SIP in aggressive hybrid funds for financial goals that you wish to fulfill within 5 to 8 years. Such a time span will give the fund the time to realize its full value and meet your financial requirements.
- Investors nearing retirement: Investors who are about to reach retirement and haven’t collected enough for their retirement corpus can invest in these funds. This is a good instrument to build your retirement funds.
What to keep in mind before investing in aggressive hybrid funds?
- Risk: The risk attached with aggressive hybrid funds is lower than pure equity funds. They have a significant equity component leading to moderately high risk. As a result, there will be a fall in the investment value when there is a market correction. However, it will not be as much as the fall in the value of pure equity mutual funds.
- Financial goals: These funds are suitable for a medium-term goal like purchasing a car or saving money for a vacation. Nevertheless, since your exposure in equity is significant, market corrections or a flat yield curve may force you to elongate the time frame of your goal.
- Cost: Aggressive hybrid schemes come with an annual fee for fund management services. If the expense ratio is high, it reduces the fund’s profit. Hence, you must choose a fund with a lower expense ratio.
Conclusion
The Tata Capital Moneyfy App provides goal-based investment options, making it easier for you to set your financial goals and achieve them by investing in aggressive hybrid funds through SIP or lump sum.
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