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Aggressive hybrid funds are equity oriented hybrid schemes which aim at wealth accumulation and regular income over the long run.

This article covers the following:

  1. How do Aggressive Hybrid Funds work?
  2. Who should invest in Aggressive Hybrid Funds?
  3. Things to consider as an investor
  4. How to Invest in Aggressive Hybrid Funds?
  5. Top 5 Aggressive Hybrid Funds in India

1. How do Aggressive Hybrid Funds work?

Aggressive hybrid funds fall in the category of hybrid schemes. These take exposure to both debt and equity securities in proportions specified in the scheme’s investment objective. As compared to plain vanilla balanced funds, these funds have differences in asset allocation. In case of balanced hybrid funds, the fund manager is not allowed to take advantage of arbitrage opportunities. In arbitrage, he/she buys securities at a low price in one stock exchange and sells them at a higher prices in the other. Gains accrue as a result of the price differential of the same security in different market.

The autonomy and choice of investment options available to aggressive hybrid funds is much higher than balanced hybrid funds. Aggressive hybrid funds enjoy the flexibility to take advantage of arbitrage opportunities available in the market. These funds have to allocate at least 20% of fund assets towards debt instruments. The investment in equity and equity related instruments varies between 40% to 60% of fund’s assets. The manner of stock selection varies from growth to value. Similarly, selection of debt securities differ from being highly sensitive to low interest rate sensitive.

2. Who should invest in Aggressive Hybrid Funds?

These funds aim at generating current income along with wealth accumulation over the long-term via a hybrid portfolio composition. These funds may be perceived as yielding higher returns at a relatively higher risk than standalone balanced hybrid funds. The fund manager attempts to provide consistent returns by investing primarily in equity and a small portion in debt and money market instruments. Such funds are best suited to investors who have a moderate risk appetite and medium-term investment horizon of at least 5 years to 7 years.

The budding investors who are new to volatility associated with the stock market may give these funds a try. Even within the same category, the level of risk among funds may vary depending upon the presence of mid-cap and small-cap stocks. However, while picking funds for investing, use analyse both quantitative and qualitative aspects of the fund.

3. Things to consider as an investor

  • Risk

    Along with debt instruments, aggressive hybrid funds are composed of equity shares as well which makes them moderately high risk investment opportunities. The net asset value (NAV) of the fund doesn’t fluctuate as much as that of pure equity funds. However, presence of low quality debt securities small-cap stocks may increase the risk profile of the portfolio.

  • Return

    In spite of having an asset allocation of more than 20% in debt and money market instruments, the returns are not guaranteed. A change in the overall interest rate in the economy might affect the fund returns by impacting the price of underlying debt securities. But compared to pure debt funds, these funds generate above average returns due to having exposure to arbitrage opportunities.

  • Cost

    Like any other mutual fund scheme, aggressive hybrid funds also charge an annual fee to provide you fund management services. A higher expense ratio cuts into the profits of the fund. While selecting a fund for investment, look for one with a lower expense ratio. The overall expenses of the fund might increase due to higher trading activity during high volatility. Thus, opting for direct plans of the fund may provide higher returns than the regular plan due to a lower expense ratio.

  • Investment Horizon

    It relates to the time duration for which you plan to stay invested in the fund. Ideally, due to presence of equity, you need to have a medium to long-term horizon for this fund. It will allow the fund to realise its full potential. Moreover, in case of a rising interest rate regime, it is better to shorten your investment horizon to prevent sudden erosion of fund value.

  • Financial Goals

    You may invest in this fund to support your medium term goals like buying a car or going on an exotic vacation. You may also utilise this fund to accumulate corpus for financing college education of your children. Newbie investors who want to take a controlled exposure to equity with stability of debt may try their hands in this fund. This fund is suitable for those investors who want to augment their monthly income. However, the dividends are not guaranteed.

  • Tax on Gains

    These funds are treated like equity funds for the purpose of taxation. The short-term capital gains (STCG) earned on the redemption of units within 1 year from the date of allotment are taxable at the rate of 15%. The long-term capital gains (LTCG) earned of redemption of units after 1 year are tax-free up to Rs 1 lakh. The LTCG in excess of Rs 1 lakh is taxable at the rate of 10% without the benefit of indexation.

4. How to Invest in Aggressive Hybrid Funds?

Investing in aggressive hybrid funds is made paperless and hassle-free at ClearTax.

Using the following steps, you can start your investment journey:
Step 1: Sign in at cleartax.in
Step 2: Enter your personal details regarding the amount of investment and period of investment
Step 3: Get your e-KYC done in less than 5 minutes
Step 4: Invest in your favorite aggressive hybrid fund from amongst the hand-picked mutual funds

5. Top 5 Aggressive Hybrid Funds in India

While selecting a fund, you need to analyze the fund from different angles. There are various quantitative and qualitative parameters which can be used to arrive at the aggressive hybrid funds as per your requirements. Additionally, you need to keep your financial goals, risk appetite and investment horizon in mind.

The following table represents the top 5 aggressive hybrid funds in India based on the past 3 year and 5 year returns. Investors may choose the funds based on a different investment horizon like 10 year returns. You may include other criteria like financial ratios as well.

Fund Name
3 year return (in %)5 year return (in %)
ICICI Prudential Equity & Debt Fund13.69 18.90
SBI Equity Hybrid Fund11.21 18.30
ICICI Prudential Child Care Fund12.30 19.81
Reliance Equity Hybrid Fund 12.71 19.09
ICICI Prudential Equity & Debt Fund13.69 18.90

*The order of funds doesn’t suggest any recommendations. Investors may choose the funds as per their goals. Returns are subject to change.

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