Best 10 Aggressive Hybrid Funds

What are Aggressive Hybrid Funds?

Aggressive hybrid funds are open-ended hybrid schemes investing predominantly in equity and equity-related instruments with smaller allocation to debt and money market instruments. According to SEBI guidelines, aggressive hybrid funds have to invest at least 65-80% of their total assets in equity and equity related instruments and 20-35% in debt instruments.

Why invest in Aggressive Hybrid Funds?

• Provides the advantage of capital appreciation with low volatility
• Provides a balanced risk-return mix through active diversification across asset debt and equity classes within the specified asset allocation range
• Equity portfolio enhances the returns of the overall fund portfolio while the debt portfolio limits the downside risk and generates stable returns
• Provides an alternative to investing separately in mutual funds belonging to various asset classes
• Reduces the churning cost incurred in managing separate equity and debt funds for asset allocation strategy
• Eliminates the need of market timing for implementing asset allocation strategy
• Benefits by booking profits in equity portfolios during rising equity markets and by increasing equity allocation during falling markets
• Provides higher tax efficiency than manual rebalancing of equity and debt fund exposure done by the investor themselves.

Also Read: Best Balanced Advantage Funds

Table of Best Aggressive Hybrid Funds

(Data as on August 18, 2021: Source: Value Research)

Investment strategies of aggressive hybrid funds

1. BNP Paribas Substantial Equity Hybrid

Equity strategy

• Maintains a large cap oriented portfolio an exposure to emerging leaders for generating alpha
• Follows bottom-up approach for stock-picking
• Does not have any sector bias for stock selection
• Prefers companies with market leadership, strong financials, quality management steady growth potential
• Invests in both value and growth companies

Debt strategy

• Actively managed portfolio on the basis of interest rate outlook
• Seeks to manage risk through active debt instrument selection and diversification
• Open to taking tactical duration calls

2. Canara Robeco Equity Hybrid

Equity strategy

• Follows a GARP (Growth at Reasonable Price) Style of Investing
• Invests in large caps & quality midcaps to provide stability, liquidity and opportunity for capital appreciation
• Diversifies across large number of stocks & sectors to mitigate concentration risk

Debt strategy

• Active management of fixed income allocation through a blend of accrual and duration strategies
• Invests in high quality corporate bonds & money market instruments to reduce credit risk

3. SBI Equity Hybrid Fund

Equity Strategy

• Invests in equities of high growth companies
• Maintains a dynamically managed portfolio based on a bottom-up approach
• Maintains a mix of large-cap, mid-cap and small-cap companies

Debt Strategy

• Invest in a mix of government debt, corporate debt and money-market instruments
• Investment calls in debt instruments taken on the basis on interest outlook, credit risk and inflation

4. Mirae Asset Hybrid Equity Fund

• Makes Equity and Debt allocation on the basis of valuation, interest rate outlook and earnings growth

Equity Strategy

• Aims at diversified portfolio of strong growth companies at reasonable price
• Flexible to invest across any themes or investment styles, with a tilt towards large cap companies

Debt Strategy

• Follows a top down approach for sector allocation and interest rate outlook
• Lays more emphasis on highly rated debt instruments
• Maintains an actively managed debt portfolio with a maturity profile based on interest rate outlook

5. Sundaram Equity Hybrid Fund

Equity Strategy

• Prefers an optimally diversified portfolio of about 45 stocks
• Invests predominantly in large cap companies with a smaller allocation to midcap one
• Strategy for large cap stocks will be similar to the strategy of Sundaram Select Focus Fund
• Invests 45% – 60% of the overall fund portfolio in the large cap stocks
• Invests 5%- 35% of the overall fund portfolio in mid & small cap range
• Investing style is growth oriented with a GARP bias

Debt Strategy

• Maintains a high quality diversified fixed income portfolio focussed on accrual income
• Invests mostly invest in AAA and AA rated bonds.
• Aims to provide an attractive yield with a high quality credit portfolio

6. Principal Hybrid Equity Fund

Equity Strategy

• Maintains large cap oriented equity portfolio with tactical allocation to midcap and small cap companies
• Follows bottom up strategy for stock selection
• Prefers to contain equity exposure within 70% of the overall fund portfolio

Debt Strategy

• Invests in high quality debt instruments
• Implements active duration management
• Takes some tactical trading positions to optimize returns

7. DSP Equity and Bond Fund

Equity Strategy

• Large-cap exposure of the equity portfolio is focused on economic recovery
• Exposure to midcap and small cap companies is aimed at generating alpha
• Uses bottom-up strategy for stock selection

Debt Strategy

• Aims at building a high quality fixed income portfolio
• Does active duration management through longer dated government bonds

8. Kotak Equity Hybrid Fund

Equity Strategy

• Invests in stocks priced at a material discount to their intrinsic value and less prone to market risk
• Manages risk by distributing investments across a range of industries and sectors

Debt Strategy

• Emphasises on debt securities less prone to market risk and default risk
• Maturity profile is selected on the basis of market conditions, rating stability and interest rate outlook

9. Motilal Oswal Equity Hybrid Fund

Equity Strategy

• Maintains a multicap portfolio with a large cap bias
• Follows bottom up strategy for stock picking
• Follows ‘Buy Right – Sit Tight’ investment philosophy

Debt Strategy

• Maintains an optimum mix of corporate bond and money market instruments
• Invests in high quality short duration accrual debt instruments offering high liquidity

10. Franklin Equity Hybrid

Equity Strategy

• Follows a blend of value and growth style of investing
• Follows a bottom-up approach for stock-picking
• Maintains a diversified equity portfolio without any sector bias

Debt Strategy

• Debt portion of the fund is invested in fixed income instruments

Taxation of Aggressive Hybrid Funds

For units held for more than 1 year:

• Long term capital gains (LTCG) tax @10% plus surcharge, if applicable, and cess on capital gains booked
• Capital gain accrued up to January 31, 2018 is exempt from LTCG tax

For units held for less than 1 year:

• Short term capital gains (STCG) Tax @ 15% plus surcharge, if applicable, and cess on gains booked

Taxation of Dividends:

• Taxable in the hands of investors as per their tax slabs
• TDS deduction @7.5% from May 14, 2020 to March 31, 2021for resident investors
• TDS deduction @10% for resident investors from April 1, 2020 to May 13, 2020
• TDS deduction @20% plus applicable surcharge and cess for non-resident investors before dividend payouts/re-investment
• Investors can claim tax-credit of TDS deducted at the time of filing their annual return.

Risks of investing in Aggressive Hybrid Funds

• Risk profile is positioned between that of pure equity funds and pure debt funds as aggressive hybrid funds have a larger allocation towards equity and a small exposure to debt
• Exposed to interest rate risk, credit risk, liquidity risk or reinvestment risk faced by the debt funds or other instruments in the fixed income asset class
• Exposed to usual market risks and risk of capital erosion risks faced by equity funds

Who should invest in Aggressive Hybrid Funds?

• Investors with investment horizon of 3+ years
• Those seeking to participate in growth potential of equity markets with reduced downside risk
• Those seeking long term capital appreciation along with accrual income
• Those seeking long term capital appreciation with lower volatility than in equity funds
• Those seeking to benefit from both equity and debt across market cycles
• Those seeking automatic asset allocation through a single mutual fund scheme