Mutual funds are primarily classified as either Equity or Debt, based on where the funds are invested.
Equity funds primarily invest in stocks/shares and Debt funds primarily invest in Bonds, Government securities and Fixed interest bearing instruments.
Whereas, Hybrid Funds invest in both equity and debt instruments.
The Mutual Funds were further re-categorized by SEBI in 2018. They are now broadly classified in the following groups;
- Equity Schemes
- Debt Schemes
- Hybrid Schemes
- Solution Oriented Schemes (for example : Retirement oriented / Pension oriented schemes)
- Other Schemes
Hybrid Mutual Fund Schemes – Classification
Hybrid Mutual Fund Schemes have been further classified as below;
An Aggressive Hybrid Fund (erstwhile known as Equity Balanced Fund) is a type of Equity Mutual Fund which combines the feature of both equity and debt in a single instrument. It means that the money pooled from the unit-holders are invested both in debt and equity related instruments.
However, the equity element in the underlying portfolio of a Hybrid Equity Fund should consist of at least 65% of the entire assets under management. The rest portion of the portfolio can consist of debt instruments and cash in hand. In general, the exposure in equity can range from 65% to 85% and is dependent on the market condition and the fund manager’s investing philosophy.
What are the main advantages of investing in Aggressive Hybrid Funds?
The main benefits of investing in an aggressive Equity Hybrid fund are;
- Diversification : The funds are invested in both equity and debt financial securities leading to diversification of investments.
- Asset Allocation & Re-balance : Hybrid Equity funds may regularly re-balance the portfolio based on market conditions & asset allocation limits. An investor is, thus, saved the hassle of manually re-balancing the portfolio. (But it is prudent not to remain invested in these funds till your reach your Financial Goal target year. You may have to switch to safer investment avenues as you reach your target year.)
- Low volatility : Aggressive Hybrid funds can be slightly less risky when compared to pure Equity funds. Equity portion will provide the capital appreciation through stock prices appreciation and dividend income. Whereas, Debt portion can provide stability through interest income and appreciation in Bond prices.
- Any type of an investor can consider adding an aggressive hybrid fund to his/her portfolio for medium to long-term goals like Retirement Planning or for Kid’s Higher Education goal planning.
- The Long-term Capital gains of up to Rs 1 lakh in a Financial year is tax-exempt.
Top 5 Best Aggressive Hybrid Equity Funds
I have considered below top and consistent performers for this year’s review of Best Aggressive Hybrid Mutual Funds 2019 (arranged in an alphabetical order) ;
- Aditya Birla Sunlife Equity Hybrid ’95 Fund (Erstwhile Aditya Birla Sun Life Balanced ’95 Fund)
- Franklin India Equity Hybrid Fund (Erstwhile known as Franklin India Balanced)
- HDFC Hybrid Equity Fund (Erstwhile HDFC Premier Multi-Cap & HDFC Balanced)
- ICICI Prudential Equity & Debt Fund (Erstwhile ICICI Prudential Balanced)
- L&T Hybrid Equity Fund (Erstwhile L&T Prudence Fund)
- Principal Hybrid Equity Fund (Erstwhile Principal Balanced)
- SBI Equity Hybrid Fund (Erstwhile SBI Magnum Balanced) &
- TATA Hybrid Equity Fund (Erstwhile TATA Balance Fund)
Let’s have a look at the Risk ratios of these top performing & best Hybrid Equity Mutual Fund Schemes;
You can use the below image as a reference to review the risk ratios while selecting right equity mutual fund schemes (to know, how consistent the funds have been..?).
Besides the above Volatility related parameters, I have analyzed the funds based on their past performances i.e., based on the returns generated over the last many years and shortlisted the Top 5 Best Aggressive Hybrid Equity Funds.
- ICICI Pru Equity & Debt Fund :
- This fund has been a consistent performer with low volatility and has a good downside protection.
- If you are a conservative ‘equity’ investor then you can consider adding this fund to your MF portfolio.
- This fund has given around 15% returns in the last 10 years.
- The Fund’s portfolio current has 73.1% investment in Indian stocks of which 62.34% is in large cap stocks, 5.18% is in mid cap stocks, 5.04% in small cap stocks. It has 21% investment in Debt of which 0.34% in Government securities, 20.92% in funds invested in very low risk securities.
- HDFC Hybrid Equity Fund :
- This fund has given the best returns of around 16% in the last 10 years when compared to its peers in the above list.
- It’s portfolio has 69.94% investment in Indian stocks of which 49.44% is in large cap stocks, 9.81% is in mid cap stocks, 10.68% in small cap stocks. The Fund has 26.8% investment in Debt of which 7.82% in Government securities, 18.21% in funds invested in very low risk securities.
- You can notice that the fund has been little aggressive with its allocation as it has invested 20% of its equity portfolio in Mid/Small cap stocks.
- Franklin Equity Hybrid Fund :
- You can expect ‘average’ and consistence performance with very low risk profile from this fund.
- However, the returns generated by this fund in the last 3 years have not been very great.
- The Fund has 69.39% investment in Indian stocks of which 58.59% is in large cap stocks, 8.14% is in mid cap stocks, 2.67% in small cap stocks.Fund has 27.15% investment in Debt of which 1.2% in Government securities, 25.96% in funds invested in very low risk securities..
- As per Valueresearchonline portal, its Debt portfolio has an average ‘AA’ grade (AAA rating is considered as the safest profile).
- SBI Equity Hybrid Fund :
- This Fund has 72.84% investment in Indian stocks of which 54.1% is in large cap stocks, 10.71% is in mid cap stocks, 7.54% in small cap stocks.Fund has 24.41% investment in Debt of which 6.32% in Government securities, 16.72% in funds invested in very low risk securities..
- The returns generated by this fund since its launch (1995) are around 16%.
- Though this fund generates decent returns in bull market, it does not have great downside protection when market’s performance turns negative.
- Principal Hybrid Equity Fund :
- You can consider this fund as a ‘high risk – high return’ kind of equity hybrid fund. It has a high standard deviation.
- It’s performance in the recent past has been very good. The fund’s ‘down-side’ protection measure has improved a bit in the last 3 years or so.
- The Fund has 71.78% investment in Indian stocks of which 53.32% is in large cap stocks, 7.37% is in mid cap stocks, 11.09% in small cap stocks.Fund has 20.12% investment in Debt of which 3.75% in Government securities, 13.86% in funds invested in very low risk securities.
(Though the performances of hybrid funds like HDFC Children Gift Fund, TATA Retirement Savings Fund, HDFC Retirement Savings Fund etc., have been good, I have ignored them due to certain draw-backs associated with these kind of Schemes.)
Some important points to ponder over before investing in an aggressive hybrid mutual fund scheme.
- Kindly do not consider aggressive Hybrid Equity funds as low risk-profile Funds. Treat them as part of your Equity-side allocation of your Investment portfolio.
- If you are investing only in Equity index funds, you may add an hybrid equity fund to your MF portfolio for a better down-side protection.
- While shortlisting an equity hybrid fund, do check out the average quality of the fixed income securities (Fund’s debt portfolio) owned by the Fund. You can find these details in portals like Valueresearchonline, morningstar or respective AMC website.
- It is prudent not to invest in Dividend oriented aggressive hybrid equity funds.
- You consider following a combination of SIP and lump sum investment strategy.
- If you are comfortable picking a mutual fund scheme on your own, consider investing in a Direct plan. Else, consult a financial advisor.
- Though Equity oriented Balanced funds have low risk profile compared to pure Equity funds, but it does not mean that they are totally risk-free. You may have to remain invested for longer period to get decent returns.
I am a strong advocate of Aggressive Hybrid Equity Funds for achieving long-term financial goals. Personally, I have good amount of exposure to HDFC Hybrid Equity Fund.
Related Article : ‘My latest Mutual Fund Portfolio‘
Kindly note that Mutual Funds are subject to market risks and their past performance may or may not be repeated.
(Featured Image courtesy of Stuart Miles at FreeDigitalPhotos.net) (Post first published on 28- June -2019).
(Data Source / References : Valueresearchonline, Moneycontrol, Morningstar, Freefincal & The Economictimes)