Large-cap funds or aggressive hybrid funds, the choice is yours

Post mutual fund categorisation, the portfolio of many mutual fund schemes have changed. This phenomenon has modified the product basket of the mutual fund industry. The best example of this is the change in the equity-oriented hybrid scheme which is now an aggressive hybrid fund.

As per the SEBI guidelines, these funds are expected to invest 65-80 per cent in the stocks and 20-35 per cent of the corpus in debts. Previously, these schemes were used to invest 65 per cent of the corpus in the equities and remaining in the debts. So these schemes were good for the conservative investors to create wealth in a longer term.

The new name of these equity-oriented hybrid schemes suits well as it clearly suggests the higher risk of the fund. If an investor can bear a bit of extra risk then these funds also form a good investment option. A little bit of extra risk is hidden in the norms of these funds as these funds have a freedom of investing 80 per cent of the corpus among any stock of any market cap. This is where the risk of these funds increases.

This is the point where large-cap funds seem to be a bit safer, post re-categorisation of the schemes. The large-cap schemes are expected to invest 80 per cent of the corpus in the top 100 companies as per market capitalisation, as they are categorised as large-caps. With 80 per cent investment in these stocks these funds form a safer option for the conservative investors.

These two categories are not comparable as the large-cap schemes are pure equity schemes, whereas aggressive hybrid schemes invest in debts also. This mixed portfolio is the key strength of the hybrid schemes, but in the case of post-tax returns, the equity funds form a good option than that of the balanced funds. But in current situation due to rising interest rates environment, hybrid funds seems to be good.

Finally, investor should always remember that it's all about the risk appetite. Market downtrends are necessary as they give good bounce back, so investing into equity funds for the longer run will be much more beneficial for reaping high returns.