Aggressive hybrid mutual funds typically invest in a combination of equities and debt assets, aiming for both capital appreciation and income generation. Under the SEBI rule, Aggressive hybrid mutual funds invest 65-80% of their assets in equity and equity-related instruments and the remaining 20-35% is invested in debt securities and money market instruments.
The equity portion adds growth potential, while the debt component provides stability. These funds are called aggressive as they allocate more money towards equity as compared to debt assets. This increased equity exposure can make them prone to market fluctuations and, consequently, potentially higher risk.
Who to invest in?
Investors with an investment horizon of
three to five years with predominant equity allocation requirements can
consider this fund. On a risk profile basis, this category fund is less risky
than a pure equity fund. The presence of debt ensures downside protection at a
time when equity market tends to be very volatile. The ideal approach to
investing in this fund is through SIP.
Tax Implication
An aggressive hybrid mutual fund is taxed akin to an equity fund. If the investment is held for one year or more, the gains are taxed at a long-term capital gains rate of 10%, with an exemption for gains below Rs 1 lakh in the ongoing financial year. On the other hand, if held for less than a year, the gains will be subject to a flat rate of 15%, without any exemptions.
Fund Selection
According to data from Value Research,
there are 49 funds available in the category offered by different asset
management companies (AMCs). In the last one-year period, there has been a wide
divergence in category returns ranging from 9 percent to 31 percent. So, when
choosing a fund for investment, do not let past performance be the sole
criteria in fund selection. What is important to check is how a fund has been
managed over the long term in various market conditions. This gives one a fair
idea about how the fund manager has been able to navigate the portfolio in
changing market conditions. One of the consistent performers, across
timeframes, in this category has been the ICICI Prudential Equity & Debt
Fund.
