Top 5 Aggressive Hybrid Mutual Funds to Invest in August 2024
You must have heard from your favourite mutual fund manager or experts that hybrid funds could do well in the coming year. Hybrid mutual funds, by nature, invest in both stocks and bonds. Hence, they normally do better in uncertain or volatile markets. Experts believe that with cautious markets, investors should also become cautious.
One of the most popular categories of hybrid mutual funds has been the aggressive hybrid funds. According to SEBI, they mandate an investment of between 65-80% in equities and 20-35% in bonds. This works fine in riding the market highs and lows. Whenever the stock market turns volatile, the bonds in the fund act as a shock absorber. This makes aggressive hybrid funds a good choice for new investors who want to keep investing without worrying too much about market volatility.
Who Should Invest in Aggressive Hybrid Funds?
In general, a “conservative equity investor” is different from a “conservative investor.” A conservative investor does not like to take risks at all and usually invests money in bank deposits, bonds, or other predictable-return-type instruments. A conservative equity investor will be, on the other hand, the one who is willing to take some risks but not too much.
Perhaps the major advantage of aggressive hybrid funds is their mixed nature of stocks and bonds in a portfolio. The fund managers will then rebalance this mix from time to time to keep the right allocation, which really helps in generating better returns over a long period. For instance, if the stock portion overshoots during a bull run, the fund manager could sell some of the stocks to return to the original balance. Such periodic profit-taking would enhance the returns over time.
You could try to construct your own portfolio of a similar mix, but you would have to pay taxes on any gains over Rs.1 lakh in a financial year. Mutual funds don’t pay taxes on these gains, which further leverage your returns.
Things to Remember Before Investing
Before you invest in an aggressive hybrid fund, remember:
1. Mixed Portfolio: Blend of stocks and bonds to ensure that the volatility is kept in check while one builds wealth over time.
2. Profit Taking: Rebound in returns comes the way of the fund manager through profit-taking on a regular basis.
3. Tax Advantage: At least, these funds have a tax advantage over you managing your own portfolio.
4. Risk: Of course, an Aggressive Hybrid Fund is not without its risks. A fund that has to mandatorily invest at least 65% in stocks does come with a certain amount of risk attached to it, and you will have to prepare for some short-term ups and downs.
Current Performance:
Let’s have a look to gauge some of the aggressive hybrid funds’ performance:
1. SBI Equity Hybrid Fund: It has stayed in the fourth quartile for the last three months.
2. Mirae Asset Hybrid Equity Fund: Moved to the third quartile last month from the fourth quartile earlier.
3. Canara Robeco Equity Hybrid Fund: Moved to the third quartile for the last 15 months.
These funds have been on our recommended list since 2023 and to keep a close watch on their performance henceforth. You should not miss monthly updates in case you are investing in these funds.
Best Aggressive Hybrid Funds to Invest in August 2024
1. SBI Equity Hybrid Fund
2. Canara Robeco Equity Hybrid Fund
3. Mirae Asset Hybrid Equity Fund
4. ICICI Prudential Equity and Debt Fund
5. Quant Absolute Fund
How Do We Select These Funds?
Here are the parameters through which we have selected the funds:
1. Mean Rolling Returns: The daily returns over a three-year period are taken.
2. Consistency: The Hurst Exponent helps quantify how often the returns of a fund have been consistent. A fund with high consistency is normally less volatile.
3. Downside Risk: It helps us understand the negative returns of a fund for its performance during downturns.
4. Out-performance: We use Jensen’s Alpha to see by how much the equity portion has outdone the market expectations, and compare the returns of the debt portion with a benchmark.
5. Asset Size: Only Hybrid funds with at least Rs.50 crore of assets have been considered.
Conclusion
Aggressive Hybrid funds would be ideal for the conservative lot of equity investors who would like to strike a good balance between their risk and return expectations. If chosen correctly, one will create wealth over time while managing the volatility of the markets.
