Many investors are concerned about the market’s volatility. If you’re putting off making your first equity investment this year, aggressive hybrid funds are a good option.
Many mutual fund advisors believe aggressive hybrid fund schemes are ideal for ‘conservative’ equity investors looking to build wealth and achieve long-term financial objectives.
Please keep in mind that a conservative equities investor and a conservative investor are not the same thing. A risk-averse investor avoids taking chances. A conservative stock investor, on the other hand, is comfortable with risk, but not excessive risk. As a result, a conservative equities investor seeks to build wealth while avoiding excessive risk.
First and foremost, what exactly is an aggressive hybrid mutual fund? The mandate of an aggressive hybrid fund is to invest in a mix of equities (or stocks) and debt. According to Sebi guidelines, these funds must invest 65-80 percent in stocks and 20-35 percent in debt.
This mixed portfolio aids in the reduction of volatility. When the stock market is in upheaval, the debt portion of the portfolio absorbs the shock. This allows new investors to continue investing without fear of losing money.
Another advantage of investing in these schemes is their mixed equity and debt portfolio. The fund management would regularly book profits in order to preserve the asset allocation, which would improve returns.
To illustrate, imagine that in a bull market, the equity allocation has gone above the original goal. To maintain the allocation, the fund manager would sell the stocks. Over a lengthy period of time, profit-booking would improve the returns.
You certainly can make such a decision and build your own mutual fund portfolio. When you book gains, though, you may have to pay taxes. A mutual fund, on the other hand, is exempt from taxation. This would aid investors in increasing their returns once more.
However, in recent years, aggressive hybrid funds have lost some of their lustre. This is mostly due to the fact that many disgruntled investors, particularly retirees, have begun to participate in aggressive hybrid schemes in order to generate a regular income. During a market downturn, many funds stopped paying out regular dividends.
The most aggressive hybrid systems include:
Canara Robeco Equity Hybrid Fund
Mirae Asset Hybrid Equity Fund
ICICI Prudential Equity and Debt Fund
For shortlisting hybrid mutual fund schemes, ETMutualFunds.com used the following criteria.
1. Daily rolling returns for the previous three years.
2. Over the last three years, there has been consistency: The Hurst Exponent, H, is used to calculate a fund’s consistency. The H exponent is a measure of a fund’s NAV series’ unpredictability.