Best aggressive hybrid mutual funds to invest in 2022

Synopsis

Here’s why you should invest in aggressive hybrid funds. What are the advantages and disadvantages of investing in them, and some good aggressive hybrid schemes you may consider investing in this new year.

Many mutual fund advisors recommend aggressive hybrid funds to new and conservative investors. They believe these schemes are ideal for these investors to create wealth to achieve their long-term financial goals. If you are looking for mutual funds to start investing in this financial year, this article may help. Here we would discuss why you should invest in aggressive hybrid funds, advantages and disadvantages of investing in them, and some good aggressive hybrid schemes you may consider investing in this new year.

Another advantage of investing in these schemes is once again their mixed portfolio of equity and debt. In order to maintain the asset allocation the fund manager would constantly book profits, and this will boost the returns. To explain, suppose the equity allocation has gone beyond the original plan in a bull market. The fund manager would sell the stocks to maintain the allocation. This profit-booking, over a long period of time, would enhance the returns.

Sure, you can do such an allocation and create your own mutual fund portfolio. However, when you book profits, you may have to pay taxes. A mutual fund, on the other hand, is not liable to pay taxes. This again would help investors to enhance their returns.

Another factor that robbed the popularity of these schemes was the trouble in the debt market two years ago. Since aggressive hybrid schemes invest 35% in debt, many investors were concerned about their investments. Many advisors also felt fund houses were transferring their bad holdings to aggressive hybrid funds. This also resulted in some investors shunning these schemes.

Now that you know about these schemes, here are the points you should remember before deciding to invest in aggressive hybrid funds. One, the mixed portfolio of these schemes helps you to limit volatility and create wealth over a long period. Two, regular profits booking would help these schemes to boost profits. Three, they offer a tax advantage. Lastly, don’t rely on regular dividends from these schemes to draw up regular income.

If these factors impress you, you may consider investing in our recommended aggressive hybrid funds.

Best aggressive hybrid schemes:

• SBI Equity Hybrid Fund
• Canara Robeco Equity Hybrid Fund
• Mirae Asset Hybrid Equity Fund
• ICICI Prudential Equity and Debt Fund

If you want to invest in these schemes, you may be interested to know how we chose these schemes. Take a look at our methodology:

ETMutualFunds.com has employed the following parameters for shortlisting the hybrid mutual fund schemes.

1. Mean rolling returns: Rolled daily for the last three years.

2. Consistency in the last three years: Hurst Exponent, H is used for computing the consistency of a fund. The H exponent is a measure of the randomness of NAV series of a fund. Funds with high H tend to exhibit low volatility compared to funds with low H.

i) When H = 0.5, the series of returns is said to be a geometric Brownian time series. These types of time series is difficult to forecast.
ii) When H is less than 0.5, the series is said to be mean reverting.
iii) When H is greater than 0.5, the series is said to be persistent. The larger the value of H, the stronger is the trend of the series

3. Downside risk: We have considered only the negative returns given by the mutual fund scheme for this measure.

X = Returns below zero

Y = Sum of all squares of X

Z = Y/number of days taken for computing the ratio

Downside risk = Square root of Z

4. Outperformance

i) Equity portion: It is measured by Jensen’s Alpha for the last three years. Jensen’s Alpha shows the risk-adjusted return generated by a mutual fund scheme relative to the expected market return predicted by the Capital Asset Pricing Model (CAPM). Higher Alpha indicates that the portfolio performance has outstripped the returns predicted by the market.

Average returns generated by the MF Scheme =

[Risk Free Rate + Beta of the MF Scheme * {(Average return of the index – Risk Free Rate}

ii) Debt portion: Fund Return – Benchmark return. Rolling returns rolled daily is used for computing the return of the fund and the benchmark and subsequently the Active return of the fund.

5. Asset size: For Hybrid funds, the threshold asset size is Rs 50 crore

(Disclaimer: past performance is no guarantee for future performance.)