Mutual funds make excellent instruments for investing in a steady and stable increase. Rahul is a new IT professional, is looking to put his money into mutual funds, but he wants to get more return. Rahul does not wish to put his money into equity funds, however he is looking for a better return. He’s not afraid of taking a risk. How can him navigate the investment world?
Investors who have a greater risk-aversion, such as Rahul and others, are able to invest in the most Aggressive Growth Mutual Funds. The fund is hybrid which means that fund managers put more money into equity funds and less in the debt fund. In this post we’ll explore this avenue of investment in greater in depth.
Understanding Aggressive Growth Mutual Funds
The increase in mutual funds across India is apparent from the rise in the amount of assets that are under management in mutual funds. In comparison to 2014, where the total assets in management (AUM) was just. 9.03 trillion, the AUM of India is up by 6x and now stands at the sum of Rs. 52.74 trillion. Fund houses can investigate a wide range of assets for managing mutual fund plans. Funds for aggressive growth put money into equity securities of businesses which have higher growth potential as well as loans.
Typically, funds for growth that are aggressive buy the Initial public offering (IPO) of companies that are growing then sell the company later on with huge gains. In some cases, they can also be invested in derivatives to increase gains. Fund managers are able to alter their allocation in a dynamic manner based on fluctuations in the market to benefit from rising tides. Be aware of this These funds that are aggressive suffer a huge loss in downturns.
Features of Aggressive Growth Mutual Funds
A thorough investigation is vital when it comes to investing in growth stocks mutual funds. These funds are invested with growth stocks in the hope that the business will grow more quickly than the general stock market. The performance of a growth fund is evaluated against the index used to measure industry performance as well as other markets that investors can place your money in. The fund’s manager is accountable to select the appropriate the investments.
A few of the characteristics of the aggressive mutual funds are:
- Greater returnGrowth stocks offer greater potential for return. Fund managers who make investments in growth companies and investors reap the benefits.
- Medium termThe generally high-risk hybrid funds work for long-term duration. Riskier investments do not work for short-term use.
- A portfolio that is heavy on equityThe majority of the investments are made by equity funds, the portfolio is likely to contain a significant portion of equity investment.
- RiskierWhen there is more potential for higher returns and a higher danger. Growth mutual funds that are aggressive have huge risk that could result in massive profits or huge losses depending upon market fluctuations.
Benefits of Investing in Aggressive Growth Mutual Funds
The idea of investing in growth stocks as an approach to long-term growth can work for you. If the market is performing poor, debt instruments can cushion loss. Take a look at a few positive aspects from investing in growth stocks
- Diversification – Since hybrid funds have a diverse portfolio of high growth stocks, they can provide the best equity diversification to investors. Much of the risk is managed with diverse investments.
- RebalancingManagers of funds must keep at a minimum of 20% of the investments they make in debt instruments to ensure the viability of hybrid funds. Therefore, the allocation of assets is always within the limit set by law. Automated rebalancing is a feature of the funds in order to take advantage of the volatility of markets. For instance, during times of bull markets they invest in stocks that grow. In the event of bearish indicators, investment are redirected to debt instruments in order to achieve an optimal refinancing.
- Lower volatilityCompared with equity fund they are more unstable since they invest in loans. This will assist in limiting losses during the bear market.
Who Should You Invest in Growth Stock Mutual Funds?
It is important to pick your investment choice according to your level of risk. If you’re not comfortable with risk and don’t like risky hybrids, these funds may not suit you. If you are looking for more gains, but would like to stay clear of risking everything by investing in equity funds, then the aggressive growth mutual funds are the right choice for you.
Make sure you locate firms that review businesses based on their growth trajectory. Investors with high-gain, higher risk preferences may want to increase the equity portion of their portfolio by investing in high-growth stock mutual funds.
Points to Remember for Aggressive Growth Mutual Funds
Everyone hopes for bigger profits, but be aware of these things before you invest in hybrid funds with a high-risk strategy that invest more in the growth sector:
- Set your goal for investing According to your financial objectives decide on your investment objective and duration. The most aggressive growth stocks will give investors high returns but with very high risk. Although there are some allocations of debt instruments fluctuations in economic conditions can have an impact on the performance of these investments.
- Learn about the risk factorsDifferent kinds of mutual funds come with various danger factors. In this case, Quant Focused Fund Direct-Growth having a 3Y yield of 26.49 percent is at a higher danger as JM Focused Direct Growth which has 3Y returns of 20.76 percent. Before you invest, make sure to fully be aware of the risk factors.
- Performance history of the fundBe sure to look into the historical background of fund performance before selecting the right fund. The data on performance will provide an insight into the extent to which the fund will achieve your financial goals.
- Cost ratioThe costs the fund house charge to cover administrative costs for mutual funds are referred to as the expense ratio. Because growth stock mutual funds are rebalanced dynamically and rebalancing, the cost can add up to the majority of your earnings.
- TaxabilityReturns that earned from the growth of aggressive mutual funds count as equity return from the fund. Thus, short-term capital gains (STCG) to redeem within a year after investing is tax-deductible at 15 15%. Long-term Capital Gains (LTCG) to be redeemed within one year is subject to tax at 10% in the event that increases exceed one lakh. In the case of LTCG that are less than one thousand are tax free.
Conclusion
In comparison to conventional equity funds, the aggressive growing mutual funds tend to be not as dangerous since a proportion of the funds are comprised of debt instruments as according to SEBI guidelines. Because these funds are very high risk, and a higher yield potential, investors should be more attentive to factors that determine risk. Learn about the fund manager that oversees these funds. Make sure that you are only relying on experts.
FAQs
What is the risk of these mutual funds??
Funds for aggressive growth carry significant risk. However, compared to traditional equity-based funds, they are lesser risk because allocations must be carried out within debt instruments as well.What is the best period to start investing in a fund that is aggressive?
The most suitable time-frame is medium-term, about 3-5 years for hybrid funds that are aggressive. It allows you to manage loss while profiting from the market’s upswings.Can I earn a guaranteed income from the most aggressive mutual funds?
The majority of all allocations is made to loans. Equity growth fund returns depend heavily on the performance of markets. Therefore, these fund choices aren’t the best option for those who want to earn some fixed income.
