Choosing between equity and a debt mutual fund scheme can be a challenge when you want exposure to equity but fear market volatility. Equity schemes invest only in equity and debt schemes only in debt. What if you wanted a combination of both?
Hybrid mutual fund schemes fill in this description. They invest in both equity and debt giving you a perfect balance between risk and returns. Hybrid mutual funds come in two variants –
- Aggressive hybrid funds
- Balanced hybrid funds
If you are looking at a higher equity exposure with a little investment in debt, you can invest in aggressive hybrid funds online. Aggressive hybrid funds are those which invest at least 65% of the portfolio in equity and equity oriented securities. Thus, when you invest in aggressive hybrid funds online, you are investing in an equity oriented mutual fund scheme which also has a debt allocation. Aggressive hybrid funds, being equity oriented in nature, give you the benefit of equity taxation.
How do aggressive hybrid funds work?
Under aggressive hybrid funds, the portfolio is allocated between equity and debt. The fund manager invests 65% to 80% of the pooled portfolio to equity oriented securities. The remaining 35% to 20% of the portfolio is invested in debt and related instruments.
When selecting equity instruments, the fund manager has the autonomy to choose between equity stocks and arbitrage opportunities in the equity market. While equity stocks offer good returns but are volatile, arbitrage opportunities allow fund managers to buy a security at a lower price and then sell it at a higher price and make a profit on such sale. Thus, arbitrage opportunities help fund managers to hedge against inflation and volatility risks.
In case of debt, the fund manager can select any type of fixed income instrument depending on its sensitivity to interest rate movements.
Thereafter, as the underlying assets of the aggressive hybrid fund perform, the fund offers returns and capital appreciation to investors.
Taxation on aggressive hybrid funds
Before investing in aggressive hybrid funds online, you should know about the tax implication on your investments.
As mentioned earlier, aggressive hybrid funds attract equity taxation. Thus, they are taxed as follows –
- Investment into an aggressive hybrid fund does not earn you any tax benefit. The invested amount forms part of your taxable income
- If you redeem your investment within 12 months, the returns earned would be called short term capital gains. Such gains would be taxed @15%
- If you redeem your investment after 12 months, you would be eligible for long term capital gains tax. Returns up to Rs.1 lakh would be tax-free in such cases. Thereafter, excess returns would be taxed @10%
Benefits of aggressive hybrid funds
By investing in both equity and debt securities, aggressive hybrid funds give you the following benefits –
- Good returns
A high equity exposure yields good returns, especially over a long term period allowing you to maximize your investments.
The debt component of the portfolio brings stability, especially in volatile markets when the equity might be underperforming.
- Hedging opportunity
By investing in arbitrage opportunities, aggressive hybrid funds allow you to hedge against inflationary trends and volatility in the market.
Best aggressive hybrid funds in India
If you are looking to invest in aggressive funds, choose the best aggressive hybrid funds of India. Such funds would give you the best returns as well as stability. Here are the top five aggressive hybrid funds which you might consider –
|Name of the fund||1-year return*||3-year returns*||5-year returns*|
|Mirae Asset Hybrid Equity Fund||20.74%||6.85%||11.1%|
|Canara Robeco Equity Hybrid Fund||11.4%||8.58%||10.34%|
|Tata Retirement Savings Moderate Fund||9.28%||5.46%||11.06%|
|Quant Absolute Fund||16.93%||8.47%||10.06%|
|Principal Hybrid Equity Fund||6.17%||3.08%||9.86%|
(*CAGR returns as on 16th October 2020)
Investing in aggressive hybrid funds
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