What are aggressive hybrid funds?
Aggressive hybrid funds, also known as aggressive allocation funds, have exposure to both equities and fixed income assets, with a minimum allocation of 65 per cent to equity. Now the issue is, how do they differ from traditional balanced funds? A balanced fund cannot over-invest in equities in the same way that these aggressive allocation funds can. In contrast to balanced funds, an aggressive allocation fund might have up to 80 per cent exposure to equity. What distinguishes them from dynamic asset allocation funds? Dynamic asset allocation funds can move freely between equity and debt, with no minimum allocation to any asset class.
What kind of returns can you expect?
In the long run, aggressive allocation funds tend to be overly invested in equities. So, even though these funds are not identical with equity funds, the return expectations might be quite close to those of equity funds. This is especially so in the case of large-cap funds, since their equity allocation is skewed toward large-caps. As a result, we can confidently anticipate returns ranging from 10 per cent to 12 per cent.
What are the underlying risks?
Since these funds are more oriented toward equities and associated instruments, the risk is higher than that of pure equity funds, but lower than that of balanced funds. These funds are vulnerable not just to market swings, but also to the risks of investing in fixed income instruments.
What investment horizon is suited for aggressive hybrid funds?
As these funds are primarily focused on equities and associated instruments, the minimum investment horizon might range from five to seven years.
Who should invest in them?
Aggressive hybrid funds can generate better returns by taking on a higher level of risk than standalone balanced hybrid funds. These funds are best suited for investors with a moderate risk tolerance and a five to seven-year investment horizon. These funds can be used as a starting point for first-time investors who have no prior experience investing in the equity market