Top Aggressive Hybrid Mutual Funds for Investment in October 2024
Hybrid mutual funds-which hybrid types specifically bear equity and debt will most likely lead the horizon into the next year. These types of funds have generally been preferred in cases of unpredictable or extremely volatile market conditions, where a balance between risk and reward is just what the investor looks to get from it. Financial experts advise investors to tread the markets cautiously and enter into hybrid options, especially aggressive hybrid mutual funds.
Aggressive hybrid mutual funds have become an in-demand category of the hybrid lot. The underlying philosophy is such that both a mix of equity (equity stocks) and debt are going to be invested in. SEBI has mandated that for such schemes, 65-80% will go towards equity and 20-35% towards debt. This combination proves to be very useful when the going gets tough in the marketplace, as the debt component becomes a cushion during turbulence in equity markets. The investor, especially a first-timer in the equity markets, will not worry much about market fluctuations if he invests in such a structure.
For those who are bothered by market volatility and uncertainty, aggressive hybrid mutual funds are worth considering. These schemes are usually advised to conservative equity investors who look to save money for their long-term financial goals. This is crucial since a conservative equity investor comes with a difference from a traditional conservative investor. Conservative investors prefer low-risk avenues like bank deposits and bonds. Conservative equity investors, however, risk some amounts, though with a preference for lower volatility. This group is interested in accumulating wealth but not at the cost of carrying highly volatile exposure to moves in the market.
Another advantage of aggressive hybrid funds is that they come with a portfolio of equity and debt. Fund managers dynamically rebalance the portfolio to adhere to the target asset allocation, which eventually generates returns. For instance, if, in a bull market scenario, the excess value of equity is on the higher side, then the fund managers sell a part of their stakes. Hence, the benefit of profitable entry is locked in. Profits booked at time intervals may hike the returns.
While one can create a similar portfolio himself, mutual fund schemes afford tax benefits. When profit books are done in personal portfolios, investors face taxes on gains of more than Rs.1 lakh in a year. Mutual funds do not incur taxes, so the returns for investors may be added on that also.
Before investing in aggressive hybrid funds, some key points are to be recalled by an investor. The schemes reduce volatility and increase wealth over long periods. Firstly, the infusion of equity and debt in the scheme reduces volatility. Secondly, regular booking of profit leads to higher returns. Thirdly, mutual funds offer tax advantages over individual portfolios. Lastly, the need is to avoid dependence on these funds for regular income through dividends as the primary goal of these funds is wealth creation rather than income generation.
However, such factors do not eliminate the inherent risk that aggressive hybrid funds carry as at least 65% of their investments are in stocks. Investors need to be ready for a considerable amount of short-term volatility.
As of October 2024, some of the aggressive hybrid funds were showing mixed performances. While the SBI Equity Hybrid Fund had been continuously in the fourth quartile for the last five months, the Mirae Asset Hybrid Equity Fund just shifted from fourth to third in the last three months. The Canara Robeco Equity Hybrid Fund continued its streak in the third quartile for the last 17 months.
Here are the aggressive hybrid funds to watch out for in October 2024:
- SBI Equity Hybrid Fund
- Canara Robeco Equity Hybrid Fund
- Mirae Asset Hybrid Equity Fund
- ICICI Prudential Equity and Debt Fund
- Quant Absolute Fund
Reasoning in Selecting Funds
The picked funds will be selected based on an all-encompassing methodology, considering several performance indicators:
1. Mean Rolling Returns: These are the daily rolling returns over the last three years to track the trend consistently.
2. Consistency: A statistical measure called the Hurst Exponent (H) is used to evaluate the fund’s consistency. Funds with a higher H value tend to show lower volatility.
- If H equals 0.5, the fund’s returns follow a random, unpredictable pattern.
- If H is below 0.5, the fund’s returns tend to revert to the mean.
- If H is above 0.5, the fund’s returns show persistence and stronger trends.
3. Downside Risk: This is measured by only taking into account the negatively distributed returns. The lesser the downside risk, the better the fund is at protecting capital during times of downturn in the market.
4. Outperformance: The equity component is measured through Jensen’s Alpha to measure the risk-adjusted return performance relative to the market expectations. In the case of the debt component, return against the benchmarks is measured in order to determine whether or not the fund has a healthy investment in terms of debt.
5. Asset Size: Only funds with AUM of Rs.50 cr or higher are considered, hence only mature and stable funds are included.
These factors can be kept in mind while making the choice for the inclusion of aggressive hybrid mutual funds in the portfolio.
