Aggressive Hybrid Funds refer to the equity oriented funds working under a mandated ratio of investing 65 – 80% of the capital in equity and 20 – 35% of the capital in debts. The term “aggressive” is related to these funds because its portfolio is inclined more towards equity as compared to debt investments.
Equity investments, clearly, are prone to market risks which directly proves the aggressive investment strategies involved in Aggressive Hybrid Funds.
Characteristics of Aggressive Hybrid Funds
According to the implications and classifications of Hybrid funds by SEBI, hybrid aggressive funds put in the investment in both stocks as well as debt securities or bonds. However, the focus is more on stocks than on bonds.
1. Aggressive Hybrid Funds are good for Long-term Financial Goals
Investments are made keeping in mind the requirement and the future financial goals. While dealing with a long-term financial goal such as education, wedding of a child or retirement plans etc. one can indulge in aggressive strategies and skew in equity investments.
2. Advantage in Arbitrage Opportunities
“Arbitrage refers to the simultaneous purchasing and selling of securities in different markets where the motive is to gain advantage from different prices of the same assets.” In case of balanced funds, the managers of balanced hybrid funds are not exposed to the advantages of arbitrage opportunities whereas aggressive hybrid funds are open to these advances by arbitrage opportunities.
3. Higher Returns Yielding Funds
Under Aggressive Hybrid Funds, the fund manager tries to incur consistent returns for long term by investing more in equities. As a result, hybrid aggressive funds are considered higher return yielding funds and also the funds with higher risk as compared to other types of mutual funds. Investors with moderate risk appetite can freely invest in such funds.
4. Higher Expense Ratio
Under every mutual fund scheme, a certain annual fee is charged against the fund management services offered by the AMCs (Asset Management Company). Being the higher return yielding funds, aggressive hybrid funds tend to cut a relatively higher expense ratio from the profits. In that case, the investor must opt for a direct plan for lower expense ratio, rather than going for a regular plan.
5. Taxation Policy
Aggressive Hybrid Funds are considered more like equity funds when it is about the taxes being applied on the profits. 15% is the rate at which the Short-term capital gains earned on redemption of units of mutual funds within 1 year from the date of allotment are taxable. And, the long-term capital gains (LTCG) earned on redemption after completion of 1 -year are tax-free up to Rs. 1 lakh. Moreover, the LTCG above Rs. 1 lakh are taxable at 10% with no benefits of indexation.
Best Aggressive Hybrid Funds 2019
The selection of a suitable fund requires proper analysis of various qualitative and quantitative factors. Here is a list of top 5 Aggressive Hybrid Funds for 2019 based on the past 1, 3 and 5 year returns:
|Fund Name||1-year returns||3-year returns||5-year returns|
|Tata Retirement Savings Fund||-1.95||-5.18||13.05|
|SBI Equity Hybrid Fund||-2.38||-1.81||11.43|
|ICICI Prudential Equity & Debt Fund||-4.65||-4.80||10.76|
|Canara Robeco Equity Hybrid Fund||-2.71||-3.30||10.69|
|HDFC Hybrid Equity Fund||-4.17||-4.13||10.66|
(Data as on August 22, 2019; Source- Value Research)
- SBI Equity Hybrid Fund
|SBI Equity Hybrid Fund||1.96||9.31||11.43|
(Data as on August 22, 2019; Source- Value Research)
SBI Equity Hybrid Fund is another popular Aggressive hybrid fund with 52 stocks in its portfolio.. The fund has invested 66.38% of its assets in the Equity and 29.67% in debt. It has assets worth Rs.29,408 crores under management.
This fund has performed efficiently throughout the years with 11.43% returns in 5-years against the 8.04% returns by its benchmark. The flexibility in investing its assets into equity and debt makes it suitable for the investors who have moderate appetite for risk.
- ICICI Prudential Equity & Debt Fund
|ICICI Prudential Equity & Debt fund||-2.10||8.26||10.76|
Launched in November 1999, ICICI Prudential Equity & Debt fund is one of the best hybrid funds right now. It has yielded good returns over the past 3 and 5 year periods, much better than its benchmark during both the periods. The fund has 87 stocks in its portfolio with financial, energy and metals as its top sectors. As far as the asset allocation is concerned, 68.52% of its assets are invested in equity, 28.41% in debt and 3.08% in cash & cash equivalents.
- Canara Robeco Equity Hybrid Fund
|Canara Robeco Equity Hybrid Fund||-0.82||9.02||10.69|
Canara Robeco Equity Hybrid Fund is more than 15 years old fund that has delivered impressive returns over the years. It has given great returns of 9.02% and 10.69% over 3 and 5 year time period respectively. Also, it has outperformed its benchmark over both of these tenures.
The scheme has invested 67.75% of its assets in equity and 22.18% in debt (as on August 22, 2019).
- HDFC Hybrid Equity Fund
|HDFC Hybrid Equity Fund||-2.07||8.19||10.66|
HDFC Hybrid Equity Fund has been a preferred choice of investors for a very long time. According to the data captured on 22 August 2019, it has assets worth Rs.21,151 crores under management. The fund has performed great over the last 5-years with 10.66% returns which is much more than the returns by its benchmark.
The fund has given maximum weightage to financial sector (27.39%), technology sector (8.24%) and energy sector (5.39%).
- DSP Equity and Bond Fund
|Tata Retirement Savings Fund||-2.66||7.48||10.89|
This is an established hybrid aggressive fund with assets worth Rs.5,915 crore under management. The scheme has outperformed its benchmark in the last 5 years with 10.89% returns. Justifying its aggressive nature, the fund has invested 72.91% of its assets in equity, 24.72% in debts and the remaining 2.36% in cash & cash equivalents. It is apparently a benefiting fund for the investors with 46 number of stocks and 12.02% returns since the day of inception.
How to Choose the Best Aggressive Hybrid Fund?
There are varied parameters on the basis of which one should select the fund to invest into. Here is a list of the factors to be kept in mind before indulging into aggressive hybrid funds:
- Risk and Market Analysis: it is very important to analyse the performance of the fund over a period of time. Rolling returns across short-term and long-term period must be taken into consideration. Also, the ability of the fund to outperform its benchmark must be compared.
- Portfolio Quality: the portfolio of the scheme is not supposed to be highly concentrated. A rather diversified folio should be maintained.
- The management: another essential factor to be considered is the performance and quality of the management. The manager’s experience and consistency plays a very important role in the fate of the fund.
Since Aggressive hybrid funds are quite “aggressive” in nature, they must be devised carefully. Long-term investors are best suited as investors for hybrid aggressive funds however they are supposed to acquire all the related details and statistics before investing into the same.