Are Aggressive Hybrid Funds Good For Volatile Markets?

While focused on equity investment, aggressive hybrid mutual funds also have adequate allocation in debt to manage potential risks

As the world moves toward a multi-polar system, leading economies are being significantly impacted. Such developments have resulted in high market volatility, presenting significant challenges for retail investors. Let us take a look at how aggressive hybrid funds can be a good option for volatile markets.

What are aggressive hybrid funds?

Aggressive hybrid funds are a specific type of mutual fund that focuses on equity investment. For example, an aggressive hybrid fund can have exposure to equity investment in the range of 65% to 80%. The rest is invested in debt such as bonds and money market instruments. As per SEBI rules, an aggressive hybrid fund must have at least 20% allocation in debt instruments and other safe options such as fixed deposits (FDs).

How aggressive hybrid funds can help during volatile market conditions?

High returns, low risk – Focus on equity ensures that investors can access high returns whenever possible. And the debt part ensures that any potential losses due to market volatility can be minimized. Due to these advantages, aggressive hybrid funds are often recommended for retail investors during volatile market conditions.

Effective diversification – With an aggressive hybrid fund, the exposure is usually across multiple industry segments. This ensures adequate risk distribution, ensuring peace of mind for investors. During volatile economic conditions, it is possible that a specific industry segment or a bunch of industries may be adversely impacted. When investments are spread out across various industries, it reduces the risk of a major loss.

Experienced fund managers – Aggressive hybrid funds are managed by seasoned professionals, who work to enhance ROI, all while minimizing risks during volatile market conditions. With comprehensive knowledge and experience, these professionals can deliver the best possible results. Something like this cannot be done by an individual retail investor. Fund managers also have access to advanced tools that are crucial in decision making.

Tax benefits – When choosing aggressive hybrid funds, retail investors also benefit from tax concessions. For example, an investor can claim tax benefits if investment in an aggressive hybrid fund is kept for more than three years.

Multiple options – Depending on their risk appetite, investors can choose aggressive growth funds or aggressive hybrid funds. In the case of the former, the focus is more on increasing the return on investment. However, this approach also means higher risks. Aggressive growth funds can work for investors who have the financial muscle to manage risks. In comparison, aggressive hybrid funds have an adequate balance of equity and debt. These are best for investors who are looking for moderate income and also want to protect themselves against market volatility.

As is evident, aggressive hybrid mutual funds can be a good option during times of market volatility. You can check the equity-to-debt ratio and the fund’s ROI track record to choose the best aggressive hybrid mutual fund.