What are aggressive hybrid funds?
Aggressive mutual funds are hybrid funds that invest between 65% and 80% of their total assets in equity and equity-related instruments and the balance 20-35% in debt securities and money market instruments. Typically, in many schemes, the equity component has a higher allocation to large-cap stocks and debt allocation is to sovereign or AAA-rated papers.
What are the advantages of aggressive hybrid funds?
Aggressive hybrid funds give you exposure to two asset classes — equity and debt. It gives an automatic asset allocation solution for those who do not want too many mutual fund schemes in their portfolio. This works well for do-it-yourself investors or those who do not want a distributor or a financial planner. Whenever the equity allocation goes above the 65-75% mark, the fund manager is forced to prune it and move to debt and vice versa, thereby helping in auto allocation.
How are aggressive hybrid funds treated for taxation?
The biggest advantage of aggressive hybrid funds is that you get allocation to debt and they are taxed as equity funds. For schemes held for more than a year, long-term capital gains of more than ₹1 lakh are taxed at 10%, while for schemes held for less than a year, short-term capital gains tax of 15% is applicable. Thus, an investor in high tax brackets gets allocation to fixed income by holding such funds but eventually pays a lower tax.
Who should invest in aggressive hybrid funds?
Financial planners believe conservative first-time investors moving to mutual funds from fixed-income products can consider such funds. Investors should opt for those schemes that have a track record of making a higher allocation to large-cap stocks in their portfolio, as these companies are well established and will have less volatility compared with mid-cap stocks. Investors could stagger their investments using systematic investment plans (SIPs). Those with moderate risk tolerance and an investment horizon of at least five years can consider these funds.
