Aggressive hybrid funds Hybrid mutual funds are one of the most popular categories. These schemes are mandated to invest in a mix of equity and debt. As per Sebi norms, these schemes must invest 65-80% in equity and 20-35% in debt. This mixed portfolio helps deal with market volatility better. When the equity market is in turmoil, the debt portion of the portfolio softens the blow. This helps new investors continue with their investments without worrying too much about volatility.
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If you are worried about uncertainties and market volatility, you may consider investing in aggressive hybrid mutual funds. Mutual fund advisors often recommend aggressive hybrid fund schemes to “conservative” equity investors to create wealth and achieve their long-term financial goals.
A “conservative equity investor” is not the same as a conservative investor. A conservative investor does not want to take any risks. These investors usually park their money in bank deposits, bonds, etc., which provide them with predictable returns. A conservative equity investor is willing to take risks, but does not want to take too much risk or too much risk of volatility. Therefore, a conservative equity investor usually wants to grow his or her assets without exposing his or her investments to too much volatility.
Mixed portfolio
Another advantage of investing in these schemes is their mixed portfolio of equity and debt. To maintain the asset allocation, the fund manager would constantly book profits, which would boost the returns. Suppose the equity allocation has gone beyond the original plan in a bull market. The fund manager would sell the stocks to maintain the allocation. This profit booking, over a long period of time, would enhance the returns. Of course, you can make such an allocation and build your own mutual fund portfolio. However, when you book profits, you may have to pay tax on profits of more than Rs 1 lakh in a financial year. A mutual fund, on the other hand, is not liable to pay tax. This would again help investors enhance their returns. Now that you are aware of these schemes, here are the points to remember before you decide to invest in aggressive hybrid funds. One, the mixed portfolio of these schemes helps you limit volatility and build wealth over a long period. Two, regular booking of profits would help these schemes to increase profits. Three, they offer a tax advantage. Lastly, do not rely on regular dividends from these schemes to generate a regular income.
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However, you should always remember that none of these factors make aggressive hybrid schemes risk-free. Any scheme that invests a minimum of 65% in equities cannot be risk-free. Equities are risky, so you need to be prepared for some volatility in the short term.
Here’s an update: SBI Equity Hybrid Fund It has been in the fourth quartile for the past three months. Mirae Asset Hybrid Equity Fund has been in the third quartile for the past month. The plan had been in the fourth quartile before that. Canara Robeco Hybrid Equity Fund has been in the third quartile for the last 15 months. Please note that these schemes have also been a part of our recommendation list in 2023. We have been keeping a close eye on these schemes. Follow our monthly updates if you are investing in these schemes.
Aggressive Hybrid Schemes to Invest in August 2024:
- SBI Equity Hybrid Fund
- Canara Robeco Hybrid Equity Fund
- Mirae Asset Hybrid Equity Fund
- ICICI Prudential Debt and Equity Fund
- Absolute quantitative fund
Methodology
If you want to invest in these schemes, you will be interested to know how we chose them. Take a look at our methodology:
ETMutualFunds has used the following parameters to select the hybrid mutual fund schemes.
1. Moving average returns: Filmed daily for the past three years.
2. Consistency over the last three years: The Hurst exponent, H, is used to calculate the consistency of a fund. The exponent H is a measure of the randomness of a fund’s NAV series. Funds with a high H tend to exhibit low volatility compared to funds with a low H.
(i) When H = 0.5, the return series is said to be a geometric Brownian time series. Such time series are difficult to forecast.
ii) When H is less than 0.5, the series is said to be mean-reverted.
iii) When H is greater than 0.5, the series is said to be persistent. The higher the value of H, the stronger the trend of the series.
3. Downside risk: For this measure we have only considered the negative returns contributed by the mutual fund.
X = Returns below zero
Y = Sum of all squares of X
Z = Y/number of days needed to calculate the relationship
Downside risk = square root of Z
4. Superior performance
i) Patrimonial portion: It is measured by Jensen’s Alpha for the past three years. Jensen’s Alpha shows the risk-adjusted return generated by a mutual fund scheme relative to the expected market return predicted by the Capital Asset Pricing Model (CAPM). A higher Alpha indicates that the portfolio’s performance has outperformed the returns predicted by the market.
Average returns generated by the MF Plan =
[RiskFreeRate+BetaoftheMFScheme*{(Averagereturnoftheindex-RiskFreeRate}[RiskFreeRate+BetaoftheMFScheme*{(Averagereturnoftheindex-RiskFreeRate}[Tasalibrederiesgo+BetadelesquemaMF*{(Rendimientopromediodelíndice-Tasalibrederiesgo}[RiskFreeRate+BetaoftheMFScheme*{(Averagereturnoftheindex-RiskFreeRate}
ii) Debt portion: Fund performance: benchmark performance. Daily cumulative returns are used to calculate the fund and benchmark performance and subsequently the fund’s active performance.
5. Asset size: For hybrid funds, the asset size limit is Rs 50 crore.
(Disclaimer: Past performance is no guarantee of future performance.)
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