Aggressive Mutual Funds

• Also known as aggressive mutual funds, these are hybrid funds that invest majorly in equity and also in debt securities. Such an asset allocation makes the fund relatively less risky than an equity-only fund, giving your portfolio a cushion against the volatility of stocks.
• Most aggressive hybrid funds have varied asset allocations between debt and equity in line with the fund’s objective. However, SEBI has laid out some guidelines regarding asset allocation to distinguish between aggressive mutual funds and balanced hybrid funds. As per SEBI, aggressive hybrid funds can have an equity exposure ranging from 65% to 80% of the total corpus. This leaves out 35% to 20% for the debt portion.

1. Since aggressive hybrid funds majorly invest in equity, these are most suited for investors with a medium to high-risk tolerance. It is worth mentioning that with high risk comes the potential of earning high returns. But returns should not be the sole driver of your decision to invest in such funds.
2. Those looking for maximum capital appreciation with less risk knowing that their portfolio has some sort of debt cushioning can consider these funds.
3. Investors with the appropriate risk tolerance who want to achieve medium to long-term goals of 3+ years can invest in aggressive hybrid mutual funds.
4. Investors new to the stock market who wish to enjoy capital appreciation with a controlled risk can consider these funds.

1. Aggressive mutual funds are similar to hybrid funds as they also invest in equity and debt. Thus, these funds enjoy the best of both worlds.
2. Aggressive hybrid mutual funds invest a minimum of 65% of assets in equity, so they are considered equity funds for tax purposes.
3. Aggressive funds are good candidates to help you meet your medium- to long-term financial goals. These could be accumulating a downpayment for your home, funding your children’s higher education, etc.
4. Aggressive mutual funds have a relatively higher risk than debt-only funds but are lower than pure equity variants.
5. In line with the risk, such funds tend to give higher returns than pure debt funds but lower compared to equity-only funds.
6. Although the risk is lower than pure equity funds, the actual level of risk depends on its underlying securities. Low-quality debt funds, interest rate changes in the economy, and too much exposure to small- and mid-cap stocks can make aggressive hybrid mutual funds risky.

Aggressive mutual funds are taxed like equity funds, as follows:

1. Capital gains:

1. Short-term Capital Gains (STCG): Gains from units sold within a year of buying them are STCG. They attract a 15% tax rate.
2. Long-term Capital Gains (LTCG): Returns earned from selling units after holding them for a year are tax-free up to Rs. 1 lakh. Any LTCG beyond this limit is taxable at 10% without indexation.

2. Dividend taxation: The dividends received are added to the taxable income and are taxed as per the income bracket of the investor. In addition to this, there is a 10% TDS on the dividend exceeding Rs. 5000 in a financial year

1. Despite being relatively less risker than pure equity funds, the level of risk in an aggressive hybrid fund depends on the proportion of mid-cap and small-cap stocks it contains.
2. If the fund manager is not careful when picking debt instruments, the fund would be exposed to the associated risks of low-quality debt securities.
3. Despite having a debt asset allocation of 35% or more, their returns are not guaranteed. This is because the prices of the underlying debt securities are sensitive to changes in the overall interest rate in the economy.
4. Aggressive hybrid funds also carry an expense ratio as with any other mutual fund. This is charged annually to manage your investment. A higher expense ratio eats into the fund’s profits. Therefore, consider the expense ratio and other deciding factors like risk, returns, volatility, etc., when finalising a fund.

1. Aggressive mutual funds can invest 65% to 80% in stocks, giving your money a higher chance of multiplying.
2. A debt allocation of at least 35% to 20% offers your portfolio a cushion against the volatility of stocks.
3. Aggressive hybrid funds are ideal for medium to long-term investments, that is, for an investment horizon of over 3 years
4. Due to equity exposure, aggressive mutual funds can generate higher returns than pure debt funds.
5. These funds are less volatile than pure equity mutual funds. Therefore, in times of market volatility, while equity-only funds would be hit severely, aggressive mutual funds would be less impacted thanks to the constituent debt assets.
6. Although the asset allocation laid out by SEBI is stringent, fund managers are free to rebalance the portfolio based on market conditions. In a bullish market, they can increase equity allocation within the specified limit to capitalise on the stock rally. In a bearish market, they can increase the debt portion of their portfolio up to the specified limit to lower the risk of falling stock prices.
7. As with any mutual fund, you can either invest a lump sum or make regular instalments via SIP to your aggressive mutual fund.
8. Adding aggressive mutual funds to your portfolio can help diversify it. Such funds offer maximum wealth creation for relatively lower risk.

• This mid-sized fund from Quant Mutual Fund has an AUM of Rs. 994.29 crore. It is managed by Vasav Sahgal, Ankit Pande, and Sanjeev Sharma. The fund has a debt exposure of 15.93% and an equity exposure of 74.87%. Quant Absolute Fund has an expense ratio of 0.56%. The fund aims to replicate the performance of CRISIL Hybrid 25+75 - Aggressive Index.

• Having an AUM of Rs. 21306.40 crore, ICICI Pru Equity & Debt Fund is a large-sized fund. Sankaran Naren, Mittul Kalawadia, Manish Banthia, and Nikhil Kabra are the fund managers. ICICI Pru Equity & Debt Fund has 20.71% debt holdings and 71.66% equity holdings. It has an expense ratio of 1.2%. CRISIL Hybrid 35+65 - Aggressive Index is the fund’s benchmark index.

• This mid-sized fund from Edelweiss Mutual Fund has an AUM of Rs. 449.2699 crore. The fund is managed by Bharat Lahoti, Bhavesh Jain, and Dhawal Dalal. It has a debt exposure of 17.51% and an equity exposure of 67.48%. Edelweiss Aggressive Hybrid Fund has an expense ratio of 0.36%. The fund aims to replicate the performance of CRISIL Hybrid 35+65 - Aggressive Index.

• Having an AUM of Rs. 772.69 crore, Baroda BNP Paribas Aggressive Hybrid Fund is a mid-sized fund. Pratish Krishnan, Mayank Prakash, and Jitendra Sriram are the fund managers. The fund has 22.23% debt holdings and 70.64% equity holdings. Baroda BNP Paribas Aggressive Hybrid Fund has an expense ratio of 0.61%. CRISIL Hybrid 35+65 - Aggressive Index is the fund’s benchmark index.

• This mid-sized fund from Kotak Mutual Fund has an AUM of Rs. 3269.24 crore. Pankaj Tibrewal and Abhishek Bisen are the fund managers. Kotak Equity Hybrid Fund has a debt exposure of 26.76% and an equity exposure of 71.62%. Its expense ratio is 0.58%. The fund aims to replicate the performance of the NIFTY 50 Hybrid Composite Debt 65:35 Index.