Here is a list of factors you can consider before investing in Aggressive Hybrid funds. View More
Performance of Aggressive Hybrid Mutual Funds
Aggressive hybrid mutual funds can generate a high return for investors as they largely depend on equity-linked schemes. For this reason, it is best for the following investors:
- Investors who are willing to invest in funds run a moderately high risk. Aggressive hybrid mutual funds invest 80% of their corpus in equity-linked schemes, making them highly volatile to market conditions.
- Investors who want to earn capital appreciation income or regular dividend income can think of investing in aggressive hybrid funds.
- Investors looking to want to generate long-term capital gains through their investments. Aggressive hybrid funds are ideal if the tenure is 3 years or higher. The longer one stays invested in these funds, the higher the chances of generating a high return since the volatility to market risks are taken care of.
- Investors who are very close to their retirement age can also consider aggressive hybrid funds, as these funds provide a way to build up a good retirement corpus quickly. If you are 5 years away from retirement, consider starting an investment in aggressive hybrid funds.
Expense Ratio
When investing in a mutual fund, it is critical to analyze the fund’s expense ratio. SEBI has set expenditure ratio caps for mutual funds based on type and category. However, investors must choose funds with the lowest expense ratio.
Asset Allocation
Aggressive Hybrid Mutual Funds allocate about 65% – 80% of their corpus to high-risk equity-linked investments, while the remaining 20% – 35% equity is allocated to debt securities or money-market instruments. Since the focus is on generating a high return, the aggressive strategy has high associated risk but is lower than those who invest purely in equity funds. So investors should ensure that they properly plan their investment goal when investing in this scheme.
Taxability
The taxation of aggressive hybrid funds depends on the quantum of equity investments. Described below are the tax implications of aggressive hybrid funds returns.
- Long-term capital gains tax: Applicable if you have invested in aggressive hybrid funds with a tenure of one year or above, your capital gains from the fund are liable to be taxed at 10%. However, if the gains remain below ₹1 lakh, then the capital gains tax is exempt for the ongoing financial year.
- Short-term capital gains tax. Applicable if your aggressive hybrid mutual funds have been held for less than one year, all the proceeds from the fund will be taxed at a flat rate of 15%. There will be no exemptions from the short-term capital gains tax
Other types of hybrid funds are taxed differently for capital gains – long-term or short-term.
Investment Goal
Depending on the investment goal, aggressive hybrid mutual funds are ideal for those who have long-term financial goals like a child’s marriage, education, or retirement. Given the volatility and risk factor, the fund is not ideal for short-term financial goals, especially ones that depend on a stable return, like purchasing a car, house, etc.
Investment Horizon
The investor’s age and investment horizon are also vital when investing in aggressive hybrid funds. For young investors who want long-term wealth creation, these funds are the ideal option since they are relatively open to taking a risk in the short term. However, those older or close to retirement who expect a safer investment option should consult with a financial advisor before investing.
Direct or Regular Plan
You can also look into direct Vs. Regular plans when investing in any mutual fund. If you plan to invest in a mutual fund via a third-party agent, you will have to pay a part of the commission, which leads to lower returns compared to direct plans. Direct plans allow investors to make investment decisions on their own, needing them to pay no additional commissions and result in a lower expense ratio.
