Aggressive Hybrid Funds

• Aggressive Hybrid funds work on the principle of asset allocation. Different asset classes have different risk profiles. By diversifying investments across equity and debt asset classes, these schemes aim to reduce risk and at the same generate returns for investors over sufficiently long investment horizons.
• The chart below shows the growth of Rs 10,000 investments in Nifty 50 TRI (representing equity) and Nifty 10 year benchmark G-Sec index (representing debt) over the last 10 years ending (30th April 2021). You can see that debt outperformed equity during several periods over the last 10 years. While equity gave superior returns over the tenure of the investment, debt would have limited downside risks in the portfolio.



^{Source: NSE, Advisorkhoj Research, 30th April 2021. Disclaimer: Past Performance may or may not be sustained in the future.}
• Hybrid Aggressive Funds regularly rebalance their asset allocations. Rebalancing is an important part of managing asset allocations since performance of different asset classes varies significantly in different market / interest rate conditions. If asset allocation is not rebalanced regularly, your actual asset allocation can deviate considerably from your target asset allocation. Regular rebalancing can also produce potentially superior risk adjusted returns.
• Unlike other hybrid fund categories, aggressive hybrid funds maintain substantially high (minimum 65%) equity allocations across all market conditions. This makes aggressive hybrid funds more volatile than other hybrid funds. However, historical data shows that equity as an asset class usually outperform other asset classes over long investment tenures. Therefore over long investment tenures, hybrid aggressive funds can outperform other hybrid fund categories.

The chart below shows the performance of a monthly SIP of Rs 10,000 in a portfolio comprising of Nifty 50 TRI (as a proxy for equity as an asset class) and Nifty 10 year benchmark G-Sec Index (as a proxy for debt as an asset class) over the last 10 years (ending 30th April 2021). The SIP date has been assumed to be 1st of every month or the next business day (if the 1st day of the month is a holiday). As before, the equity allocation of the portfolio is 65%, while the debt allocation is 35%. With a cumulative investment of Rs 12 lakhs, you could have accumulated a corpus of Rs 22.6 lakhs (as on 30th April 2021). The annualized SIP returns (XIRR) of this hybrid portfolio over the last 10 years was 12.2%.

^{Source: NSE, Advisorkhoj Research, 30th April 2021. Asset Allocation: Nifty 50 TRI 65%; Nifty 10 year benchmark G-Sec Index 35%. Disclaimer: Past Performance may or may not be sustained in the future.}