Dabbling in equities can seem daunting if you are new to the world of investments. Yes, the charm of high returns can seem hard to repel and it may evoke a misplaced sense of confidence that you can Google your way through managing equities but it is easier said than done.

That is not to say that new investors should abstain from equities but treading with caution and a sense of awareness about one’s risk tolerance capabilities can avert episodes where you end up losing a lot of money because you couldn’t act in the right way at the right time. Equities are highly sensitive to market movements and even experienced investors cannot time the markets correctly at all times.

Starting with hybrid funds in your portfolio can be a wise approach if you are still finding your bearings with respect to managing investments and one such way to do is that by investing in aggressive hybrid funds. These funds have gained popularity among seasoned as well as novice investors.

As per the Securities & Exchange Board of India (SEBI) guidelines, an aggressive hybrid fund has to invest about 65 to 80 percent of its assets in equity and equity-related instruments and the remaining 20 to 35 percent investments can be in debt instruments. Here is why you should consider adding aggressive hybrid funds to your portfolio if you are a new investor.

Lower risks than pure equities

If you have just started taking baby steps in the gamut of investments, a loss can be a confidence dampener. Pure equities carry high risks and without the requisite knowledge about how to go about handling your equity investments in different market phases, you may end up taking a wrong decision that in the short term can prove be costly and it may throw you off your investment path for a while. Given that debt instruments carry significantly lower risks and offer relatively stable returns it offsets the risks of the equity component in the fund and thus it can be a much safer and comfortable way to fulfill your short and medium term goals rather than relying completely on stocks. The other advantage is that by investing in aggressive hybrid funds, you can earn returns that are almost at par with equities while the debt component injects stability in your portfolio and provides the option of earning regular returns.

SIP and lumpsum investment options

Based on your financial needs and capabilities, you can either make a lump sum investment or take the systematic investment plan route while investing in aggressive hybrid funds. If you make a lump sum investment in an aggressive hybrid fund the unit allotment will be in tandem with your investment amount. A SIP plan, on the other hand, makes it easier to invest shorter sums at regular intervals in case you do not have a chunk of funds to spare at one go and more importantly you will be able to reap the benefits of rupee cost averaging. When you invest periodically, you are able to accumulate units at different prices – when the markets are down and the fund’s NAV is lower, you will get more units and when the markets are up and the fund’s NAV is lower, you will get fewer units. With time, you would have invested across all market phases and this helps in increasing overall gains.

The SWP benefit

With hybrid funds, you can use the systematic withdrawal plan (SWP) facility to earn additional income without attracting penalties for premature withdrawals that is common in investment vehicles that have lock-in periods. SWP is a pretty useful tool that works just like SIP but the difference is that instead of investing at regular intervals as is the case with SIPs, you can redeem your investment units at regular intervals. The withdrawals can be customized depending on your financial needs and you can withdraw a specific amount at predetermined intervals from the amount you invested in the aggressive hybrid fund and the amount remaining after every cycle of withdrawal will continue to remain invested. It is important to note that there will be times when the markets would be high on the date of redemption and occasions when it would be exhibiting downward trends. When the markets are performing well you will be able to redeem lesser units for an SWP of a fixed amount as compared to phases when the m

arkets are on slippery slopes. This averages your returns and acts as a buffer from potential losses which can arise should you have to sell your units during a bear-run.

Automatic rebalancing

One of the primary advantages of Aggressive Hybrid funds, especially for novice investors is that rigorous rebalancing exercises are conducted by fund managers from time to time to keep the asset allocation within the prescribed limit. Current SEBI norms require these mutual funds to invest at least 20% in debt funds. So, when the markets ascend, the value of equity holdings increases and the allocation becomes tilted such that the weightage of equities becomes higher in the portfolio. The fund manager then withdraws from equity investments to a certain extent and invests the proceeds in debt instruments to restore the balance. This spares you from actively having to time the markets and also reduces the chances of erroneous decisions, especially if you are still climbing the ropes of equity investments.

Disclaimer: An Investor Education Initiative by Mirae Asset Mutual Fund

For information on one-time KYC (Know Your Customer) process, Registered Mutual Funds and procedure to lodge a complaint, refer to the knowledge center section available on the website of Mirae Asset Mutual Fund

Mutual Fund investments are subject to market risks, read all scheme related documents carefully.


IE Disclaimer

An investor education initiative by Mirae Asset Mutual Fund.

For information KYC process, Registered Mutual Funds and the procedure to lodge a complaint, refer knowledge centre section available on the website of Mirae Asset Mutal Fund.

Mutual fund investments are subject to market risks, read all scheme related documents carefully.