When it comes to mutual funds, there are plenty of products to choose from. But sometimes, plenty of options can become a tad confusing. If you are investing in mutual funds for wealth creation, then you need to take some risks and at the same time also ensure that you have a long term investment horizon. Although equity mutual funds are usually considered for long term wealth creation, some individuals do not wish to expose their entire investment portfolio to the dangers of equity markets.
If you too want to generate long term wealth but do not wish to expose your entire investment sum to the dangers of equity markets, you can consider investing in aggressive hybrid funds.
What is an aggressive hybrid fund?
Mutual funds are largely categorized as equity, debt, and hybrid schemes. An equity mutual fund predominantly invests in equity and equity related instruments whereas debt funds invest in fixed income securities and money market instruments for income generation. Hybrid funds on the other include both equity and debt securities in their portfolio.
An aggressive hybrid fund is one of the several mutual fund product categories available under the hybrid schemes spectrum. An aggressive hybrid fund is a mutual fund scheme that invests the majority of its investible corpus in equity while reserving a small portion of the portfolio to debt. Of its total assets, a hybrid fund may allocate anywhere between 65 percent to 80 percent in equity while the remaining of the portfolio has exposure to debt assets.
How do aggressive hybrid funds work?
Aggressive hybrid funds invest in both equity and debt asset classes. The portfolio allocation as per SEBI mandate for aggressive hybrid funds is 65 percent to 80 percent in equity and 20 percent to 35 percent in debt. In the long run, the equity component of the aggressive hybrid fund might be able to help you generate decent returns. On the other hand, the debt component will offer capital protection and the necessary cushion when equity markets turn volatile and might be able to mitigate the portfolio’s overall investment risk. By investing in an aggressive hybrid fund, investors get access to both equity and debt asset classes through one single investment.
Who should invest in aggressive hybrid funds?
New well as seasoned mutual fund investors can consider investing in this hybrid scheme.
Those who are new to mutual funds and want to take exposure to equity funds but do not want to risk their entire portfolio to the dangers of equity markets can consider investing in aggressive hybrid funds. During market upheavals, the debt component of this scheme ensures that the entire portfolio does not get affected, unlike other equity funds.
Aggressive hybrid funds predominantly invest in equity and equity related instruments which is why investors need to have a medium to long term investment horizon when investing in these funds. So if you have any financial goals that you need to achieve in the next three to five years then you can target these goals with investments in aggressive hybrid funds. For the fund to realize its full potential, one must invest in them for a minimum duration of 3 to 5 years.
Since these funds do not entirely expose their portfolio to the equity market, investors who are nearing the age of retirement and want to build a retirement corpus can consider these funds too.