Aggressive Allocation Funds: Comprehensive Guide

Aggressive Allocation Funds, a category of hybrid mutual funds, are tailored for investors seeking an equity-oriented approach with a touch of conservatism.

Here in this article, we will discuss important aspects of aggressive allocation funds to help you determine whether these funds are a good choice for you or not. Let’s get started!

Aggressive Allocation Funds: Meaning & Definition

Aggressive allocation funds are hybrid funds that invest 65% to 80% of the total assets in equity (stocks) and the remaining in fixed-income instruments (debt).

These funds are designed for investors who want capital appreciation (associated with equity investments) and some level of capital preservation and income stability (associated with debt investments).

Related: Equity Funds | Debt Funds | Hybrid Funds

Important Points To Consider

Here are some crucial aspects of aggressive allocation funds that investors can utilize to make informed investment decisions.

A. Alignment To Financial Plan

Mutual funds offer a wide range of schemes designed to align with individual financial plans. Aligning your financial plan with an appropriate mutual fund scheme is crucial for achieving your financial goals.

The key to finding the right scheme is to carefully assess its characteristics and goals to ensure they align with your financial plan.

B. Portfolio Composition

Due to a high equity exposure, aggressive allocation funds are considered riskier than any other hybrid fund. This risk can further be increased if the portfolio has small-cap stocks and low-quality debt securities.

Hence, it is very important to investigate the portfolio composition of each aggressive allocation fund before investing.

C. Expense Ratio

The fund manager of a hybrid fund has to manage multiple types of assets simultaneously. It requires additional effort compared to pure equity or pure debt funds. This may result in a higher expense ratio that can eat into your returns.

So, comparing the expense ratios of different mutual fund schemes will be a wise step.

D. Taxation

Investors may invest in hybrid funds for tax advantages. However, an aggressive allocation fund is not the right choice. Due to the equity nature, aggressive allocation funds are taxed similarly to equity funds. Here are the taxation rules:

1. Short-Term Capital Gains (STCGs): If you sell your investments before the holding period of one year, a tax of 15% will be deducted on gains on investments.

2. Long-Term Capital Gains (LTCGs): If you sell your investments after the holding period of one year, an LTCG of up to 1 lakh is tax-free. Over this amount, a tax of 10% will be deducted from gains on investments.

E. Exit Loads

If an investor exits an aggressive allocation fund partially or fully within a certain period from the date of investment, he/she can be charged a fee called exit load. Therefore, investors should check & compare the exit loads of mutual fund schemes.

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