Are aggressive hybrid MFs suitable for your childs education goal?

Many a time people have a tendency not to review their portfolio as they find it cumbersome to manage equity and debt funds. So, is there any solution to this? Yes, you have hybrid funds to take care of that where you don’t need to buy two different asset classes viz. equity and debt as hybrid funds invest in both in equity as well as debt. However, after the SEBI’s (Securities and Exchange Board of India’s) circular on re-categorization, there are various subcategories present in the broad hybrid category. One of them is aggressive hybrid funds.

As per SEBI, aggressive hybrid funds are those wherein 65 per cent to 80 per cent of the total assets must be in equity and equity-related instruments and 20 per cent to 35 per cent of total assets in debt instruments. Also, the thing to note here is that according to SEBI, fund houses are allowed to have only one category among aggressive hybrid funds and balanced hybrid funds. This means that fund houses can either go with balanced hybrid funds or aggressive hybrid funds. According to SEBI, balanced hybrid funds are those wherein 40 per cent to 60 per cent of the total assets must be in equity and equity related instruments and 40 per cent to 60 per cent of total assets in debt instruments.

But the question is whether aggressive hybrid funds are capable enough to aid you in accumulating funds for your child’s education? If we look at the 1-year, 3-year, 5-year and 10-year average returns then they stand at 2.77 per cent, 10.23 per cent, 11.54 per cent and 13.95 per cent, respectively. If we closely observe we can say that as the time horizon of investment increases, the returns tend to increase by some margin.

Let us assume that you need Rs. 20 lakh inflation-adjusted after 10 years for your child’s education and the aggressive hybrid fund would grow at 13.95 per cent over the period of 10 years. Then to accumulate Rs. 20 lakh you would require to do SIP (Systematic Investment Plan) of Rs. 7,700 per month for 10 years and if you already have Rs. 5.42 lakh then you can invest in aggressive hybrid funds to achieve your child’s education.

Before opting for investing in aggressive hybrid funds you need to assess your risk profile and time horizon for which you wish to invest. Aggressive hybrid funds would be suitable for conservative risk takers with a time horizon of more than 5 years. Aggressive investors can ignore this and rather invest in debt and equity funds separately to get maximum out of your investment.