Aggressive mutual funds pursue higher returns by primarily investing in stocks with higher potential. Although these funds carry higher risk, they offer the potential for attractive long-term returns. They strategically navigate between equity and debt segments, capitalizing on opportunities in both.
In this article, we will explore the concept of aggressive mutual funds in detail for new investors so that they can identify the best aggressive mutual funds.
Understanding Aggressive Mutual Funds
Aggressive Mutual Funds, according to SEBI guidelines, allocate 65-80% of their assets to equity and equity-related instruments, while dedicating 20-35% to debt securities.
Unlike balanced or hybrid funds, they enable fund managers to capitalize on arbitrage opportunities and exercise greater autonomy. Managers can opt for growth or value investing styles when selecting stocks and can choose debt securities based on their sensitivity to interest rates.
This allows for the creation of a perfect amalgam of investment portfolios that can adapt to changing market trends.
A disciplined and long-term strategy is the best approach to achieve good returns as the equity component benefits from a bullish market, and debt investments provide stability.
Features of Aggressive Mutual Funds
Here are the features of aggressive funds.
1. Risk and Return
With a 65-80% allocation to equity, aggressive mutual funds exhibit higher risk. But the potential for reward is also higher. This makes aggressive mutual funds an attractive option for growth-oriented investors.
2. Investment Horizon
These funds are ideally suited for medium to long-term financial goals. This is because a dominant proportion of these funds is invested in equity. Hence, in the longer term, they can ride out market volatility and capitalize on the long-term growth trajectory of equities.
3. Expense Ratio Considerations
Investors should be mindful of the expense ratios as higher fees can eat into the profits. Choosing direct investment plans may help in reducing these costs and enhancing net returns.
Who Should Invest in Aggressive Mutual Funds?
Aggressive mutual funds are ideal for:
- Investors who are comfortable with moderate risk and seek both regular income and long-term wealth accumulation.
- Investors with a minimum investment time frame of 5 years.
- Those who can tolerate short-term volatility in pursuit of higher returns.
Potential investors should carefully evaluate the fund’s portfolio, especially the choice of equities (such as small or mid-cap stocks), to ensure alignment with their risk tolerance and investment goals.
For new investors, diving into aggressive mutual funds requires a thorough understanding of market dynamics and personal risk capacity. With proper analysis and market strategies, aggressive mutual funds are an excellent investment vehicle to achieve your financial objectives.
Conclusion
In conclusion, aggressive mutual funds present viable investment formulae for growth-oriented investors willing to accept a higher level of risk for a greater potential for growth. Aggressive mutual funds leverage equity’s growth potential while mitigating risks through strategic debt allocation.
Happy Investing!
