Aggressive Hybrid Funds fall in the category of hybrid schemes. These take exposure to both debt and equity securities in proportions specified in the scheme’s investment objective. As compared to Balanced Hybrid Funds, these funds have differences in asset allocation.
These funds aim at wealth accumulation over the long-term via a hybrid portfolio composition. These funds may be perceived as yielding higher returns at a relatively higher risk than standalone Balanced Hybrid Funds. The fund manager attempts to provide consistent returns by investing primarily in equity and a small portion in debt and money market instruments.
Characteristics of Aggressive Hybrid Funds:
Investment in equity and equity related instruments: between 65 per cent-80 per cent of total assets;
Investment in debt instruments: between 20 per cent-35 per cent of total assets.
Things to consider as an investor:
Risk: Along with debt instruments, aggressive hybrid funds are composed of equity shares as well which makes them moderately high risk investment opportunities. The net asset value (NAV) of the fund doesn’t fluctuate as much as that of pure equity funds. However, presence of low quality debt securities small-cap stocks may increase the risk profile of the portfolio.
Return: In spite of having an asset allocation of more than 20 per cent in debt and money market instruments, the returns are not guaranteed. A change in the overall interest rate in the economy might affect the fund returns by impacting the price of underlying debt securities. But compared to pure debt funds, these funds generate above average returns due to having exposure to arbitrage opportunities.