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Understanding Nuances of Aggressive Mutual Funds

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Introduction

As their name suggests, aggressive mutual funds aim to maximize capital gains by prioritizing investment in growth stocks. Despite the higher risk associated with these funds, the potential for long-term returns is enticing.

Positioned between equity and debt funds, these funds seize opportunities across both segments. While the allocation percentages between debt and equity differ among hybrid funds, SEBI has specifically identified aggressive funds with an equity allocation ranging from 65% to 80%.

In this guide, we will delve into the nuances of aggressive funds, which will help you make informed investment decisions. 

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What Are Aggressive Mutual Funds?

As stated earlier, Aggressive Mutual Funds allocate 65-80% of assets to equity and equity-related instruments, with 20-35% to debt securities. Unlike balanced funds, they allow fund managers to exploit arbitrage opportunities and exercise greater autonomy. Managers can adopt growth or value investing styles for stock selection and choose debt securities based on interest rate sensitivity.

How Does Aggressive Mutual Funds Work?

Aggressive growth funds balance investments in equities and debt, with a minimum of 20% allocated to debt and FD-like securities for stability (as per SEBI guidelines). While equities offer long-term wealth generation, debt instruments provide income stability. 

Aggressive hybrid mutual funds aim to combine both benefits in a single investment. Patience and a long-term horizon are key to earning favorable returns as the equity component thrives during market upswings and debt investments act as a cushion during underperformance. 

Who Should Invest In Aggressive Mutual Funds?

Aggressive funds aim for regular income and long-term wealth through a hybrid portfolio. Compared to balanced funds, they are perceived as riskier. These funds prioritize equity and equity-related instruments, with a smaller portion in debt for stability. Investors with moderate risk tolerance and a 5-year investment horizon can consider them. Assessing the portfolio, particularly the selection of small/mid-cap stocks, is crucial before investing. 

What Are The Features Of Aggressive Mutual Funds?

The features of aggressive mutual funds are as follows:

  1. These funds exhibit high-risk exposure due to their equity-heavy allocation. It makes them unsuitable for risk-averse investors. 
  2. Despite the risk, aggressive funds offer the potential for higher returns by allocating more funds to equities while providing stability through the debt component. 
  3. Ideal for medium-term goals, but volatility and market corrections can impact earnings. 
  4. Consider the expense ratio, as higher fees can reduce overall profits. Opting for direct investment plans can help minimize expenses.

Final Words

Aggressive Mutual Funds can be a rewarding investment option for individuals with higher risk tolerance and a long-term investment horizon. While they offer the potential for significant returns, careful analysis, and understanding of the marketing dynamics are essential to navigate the inherent volatility

 

Related Blogs: B Shares Mutual Fund Explained | Tax implications on a Mutual Fund and SIPs | SIP and the power of compounding | If you're investing in SIP, make Mutual Funds SIP calculator your best friend

 

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