Wealth Creation Through Aggressive Hybrid Funds

If wealth creation is on your mind, you need to first understand the basics of financial planning. The reason you want to create wealth in the first place is because you might not be satisfied with your current financial situation. If you seek financial stability, then understanding financial planning is a must. To begin with financial planning, you may have to once take a look at your existing liabilities and also keep a tab on your monthly expenses. That’s because if you want to set short term and long term financial goals, you should have enough money in hand to start investing. If you aren’t saving at all that means you are poor at money management. Remember that if you want to create wealth in the long run, you may have to cut down on all the unnecessary expenses now.

To create wealth, you have to be consistent with your investing. If you invest every month, that may give your investments a systematic approach and if you invest regularly for the long run, you may be able to get closer to your goal. But before you invest your money in any scheme, make sure that you align it with your financial objective with your risk appetite, investment horizon and your existing liabilities. If possible get rid of all your debts because they will have an adverse impact on your investments in the long run. If you have any unpaid debts like loans or credit card bills and fail to repay them on time, you may not be able to invest regularly because these debts will come and haunt you every now and then.

If you are an individual who has a moderately high risk appetite and doesn’t mind giving their investments a slightly aggressive approach by investing in schemes that have a decent risk rewards ratio, you may consider investing in mutual funds.

What is a mutual fund?

Mutual funds are a pool of professionally managed funds where fund houses and AMCs collect money from individuals sharing a common investment objective and invest this pool of raised capital across the Indian economy. SEBI, the regulator of mutual funds in India, describe them as, “a mechanism for pooling the resources by issuing units to the investors and investing funds in securities in accordance with objectives as disclosed in the offer document.

Investments in securities are spread across a wide cross-section of industries and sectors and thus the risk is reduced. Diversification reduces the risk because all stocks may not move in the same direction in the same proportion at the same time. Mutual fund issues units to the investors in accordance with the quantum of money invested by them. Investors of mutual funds are known as unitholders.”

A mutual fund invests in various asset classes including equity, debt, call money, T-bills, etc. depending on the risk profile and investment objective of the scheme. Mutual fund investors receive shares in the form of units in proportion to the money invested and depending on the fund’s existing NAV.

In the recent past, aggressive hybrid funds have gained popularity in India. Several investors are turning to hybrid schemes because they offer diversification and have a unique asset allocation strategy as compared to other mutual funds.

What is a hybrid fund?

Hybrid funds are those mutual funds that invest in both equity and debt related instruments. It is because of this that a hybrid fund is also referred to as a balanced fund.

What is an aggressive hybrid fund?

Of its total assets, an aggressive hybrid fund must invest 65 percent to 80 percent of total in equity & equity related instruments whereas 20 percent to 35 percent of the total assets in debt instruments.

Can investing in aggressive hybrid funds help me create wealth?

The investment objective of an aggressive hybrid fund is to generate long term capital appreciation by investing in a mix of equity and equity related instruments, debt instruments and money market instruments. These funds invest in equity making them highly volatile to market fluctuations. But if you have a long term investment horizon, you may not have to worry about the daily market fluctuations as long term investments usually do not get affected by them. You can start a systematic investment plan (SIP) where every month on a fixed date, a predetermined amount is automatically debited from your savings account and electronically transferred to your aggressive hybrid fund. If you invest in aggressive hybrid funds for the long run you may benefit from compounding as well. You may continue investing in aggressive hybrid funds through SIP app till your investment objective is achieved.

Mutual funds may offer investors with capital appreciation but investors are requested to seek the help of a financial advisor before investing in any scheme.

Mutual Fund Investments are subject to market risks, read all scheme related documents carefully.