Should you consider investing in aggressive hybrid fund?

The idea of hybrid funds has not been adopted very well by investors when compared to equity mutual funds. The reason being returns. Equity MFs give higher returns as compared to aggressive hybrid funds. This is due to the fact that equity MFs purely invest in equity, but aggressive hybrid funds also have debt portion as well which brings down their overall returns.

Rather than having a hybrid fund, there is always an option to buy equity and debt funds separately and then tweak it as per the asset allocation requirements. However, this should only be done by an experienced investor, for fresh investors, it is always a good idea to leave the asset allocation part on fund manager and let him tweak it.

When it comes to risk and returns, aggressive hybrid funds have less risk as compared to equity MFs. As per the SEBI (Securities and Exchange Board of India), aggressive hybrid funds must have at all times 65 per cent to 80 per cent of the total assets in equity and 20 per cent to 35 per cent of the total assets in debt. So, the maximum equity can be 80 per cent and the minimum debt they have to maintain 20 per cent. Due to this, the returns on aggressive funds are less than pure equity MFs.

So, should it bother you? No. not at all. Aggressive hybrid funds are a good choice for first-time investors or investors with less experience as this will help you to experience equity and as it also invests in debt funds, your losses may be limited. Even conservative to moderately conservative investors can think of investing in the same to have some exposure towards equity. However, for seasoned and aggressive investors it would be better to invest directly in small-cap and mid-cap equity MFs and also if they are aggressive enough then they can invest in thematic and sectoral funds as well.