Mumbai: Are you worried about regular ups and downs in the stock markets? Concerned that the funds you purchased may dwindle due to downturns? Possibly, the most effective fund for you is a hybrid fund, especially the Aggressive Hybrid Fund, which offers the best of both worlds – equity and debt asset classes – in a single investment option.
Understanding Aggressive Hybrid Funds
As per Sebi guidelines, such a fund invests 65 per cent to 80 per cent in equity and equity-related instruments and the remaining 20 per cent to 35 per cent in debt. The risks are low compared to pure-play equity funds, and the returns are similar to equity-based mutual funds.
How they work
When the markets are on a roll, these funds can generate high returns, helping investors build a healthy corpus over the long run. When the indices tumble, the debt components provide a protective cushion and stability.
The basic strategy is when stocks tank during extraordinary events, like the latest election results, the risks are restricted to the equity component of the fund. In such a scenario, the debt portion saves the day and mitigates (even covers up) the losses.
According to the value research data, Aggressive Hybrid Funds delivered returns of 32.59 per cent, 15.98 per cent, and 15.80 per cent in the last 1, 3, and 5 years, respectively, as of June 25, 2024.
Which kind of investors should invest?
These funds are attractive for new and novice investors who are unfamiliar with regular market volatility. The risk levels may vary depending on the presence of mid-cap and small-cap stocks within a fund, even if they are in the same category. However, the fund will still fall under a high-risk category. Hence, evaluating the quantitative and qualitative components is imperative while selecting it for investment purposes.
Tax implications
Aggressive hybrid funds are treated as equity funds for tax purposes, and hence, the taxation rate is the same as the latter, given the high exposure to equity. If you redeem them before one year, the returns are subject to 15 per cent tax. If the period is more than a year, the rate is 10 per cent (long-term capital gains) on returns of Rs. 1 lakh or more in a fiscal year.
When should you invest?
Investors who have reached their financial goals, and those with a moderate risk tolerance may wish to switch from high-risk investments, like small- and mid-cap funds, to comparatively safer options like aggressive hybrid mutual funds. At present, as equities are at their highest levels, investors with a timeframe of more than three years can invest in hybrid funds.
During unprecedented volatility, the Aggressive fund’s equity component generates viable and lucrative returns, and when the stock market underperforms and slumps, the debt portion saves the day for the investors. Learn what Aggressive Hybrid Mutual Funds are Business Business News – Personal Finance News, Share Market News, BSE/NSE News, Stock Exchange News Today
