Mutual Funds: Is now the right time to invest in aggressive hybrid funds?

Aggressive hybrid mutual funds have recently gained considerable attention due to their outstanding performance. These funds have delivered impressive returns over the past year, making them a compelling option for investors seeking high returns. This article talks about the performance of these funds, the factors contributing to their performance, and whether they should be part of your investment portfolio.

Stellar performance in the past year

Aggressive hybrid mutual funds have shown performance, with the JM Aggressive Hybrid Fund leading the category by delivering a 55.48% return over the last year. Following closely is the Bank of India Mid & Small Cap Equity & Debt Fund, which provided a return of 47.28%. These high returns are not isolated cases; other funds in the category have also performed well. In total, 29 schemes in this category have completed one year in the market, collectively offering an average return of 27.82%.

Also Read: Mutual funds: Investment in these 5 aggressive hybrid schemes doubled in the past 5 years; check list here

Factors behind the high returns 

These mutual funds have achieved high returns through several smart strategies by their managers. These funds have taken advantage of the equity market growth by investing over 70% of their assets in stocks, which is more than the required 65%. Additionally, they have wisely invested 20-25% of their assets in midcap and small-cap stocks, which has boosted their returns even more. Some funds that invested up to 40% in these smaller stocks have seen nearly 55% returns.

Good stock selection and smart debt management have also helped these funds perform well. Many of their investments have yielded positive returns, including some stocks that have more than doubled in value. 

Also Read: Dynamic hybrid funds: Why should you invest in these mutual funds?

Benchmark comparison

Aggressive hybrid funds are benchmarked against indices such as the CRISIL Hybrid 35+65 - Aggressive Index, CRISIL Hybrid 25+75 - Aggressive Index, Nifty 50 Hybrid Composite Debt 65:35 Index, Crisil Short Term Bond Index, and Nifty MidSmallcap 400 - TRI. 

For instance, in the last year, the CRISIL Hybrid 35+65 - Aggressive Index delivered a 22.79% return, showcasing the impressive performance of aggressive hybrid funds compared to their benchmarks.

Should you invest now?

Investing in aggressive hybrid mutual funds depends on several factors, including your risk tolerance, financial goals, and investment horizon. These funds are ideal for investors willing to take on higher risk for potentially higher returns. One can consider investing in them for a minimum investment horizon of five years.

Strategic investment approach

When considering an investment in aggressive hybrid funds, adopting a strategic approach can help balance risk and potential returns. Here are a few recommended strategies:

1. Staggered Investment: Implement a staggered investment method through Systematic Investment Plans (SIPs) or Systematic Transfer Plans (STPs) for lump sum amounts. This approach helps cushion the impact of market volatility over time.

2. One-time Investments: For lump sum investments, consider splitting your investment by allocating 50% upfront and the remainder through STP. Adjust the duration and split based on market conditions to ensure market exposure and benefit regardless of market direction.

Also Read: Mutual Funds: 7 smart SIP strategies can help you stay committed to your financial goals

Final thought

Aggressive hybrid mutual funds have shown exceptional performance, making them an attractive option for investors with a higher risk appetite. Their strategic asset allocation, targeted exposure to diverse market capitalizations, and adept risk management have contributed to their stellar returns. However, always align your investment decisions with your financial goals, risk tolerance, and investment horizon. With a strategic investment approach, you can optimise returns while effectively managing risks.

Chakravarthy V., Co-founder and Director, Prime Wealth Finserv Pvt Ltd.