Aggressive Mutual Funds are the most critical segment of the financial market.
If you’re an active investor, this article has some of the most valuable information to share with you. So without losing a moment, let’s get into this article.
What are Aggressive Mutual Funds?
Aggressive Mutual Fund is also known as the Aggressive Growth fund. It is linked with the unique style of investing that focuses on the stock of a company holding a strong position in the market.
However, investments held in Aggressive Mutual Funds are opposite to the diversified investing approach.
For instance, these funds target only those stocks with a higher rate of return while ignoring the risk associated with it.
Though, it’s a very common thing that the stock offering higher returns carries a higher level risk too.
Aggressive Mutual Funds aim at providing the rate of return to the trader above the average market return.
But in most instances, an investment held in these funds turn out to be highly volatile that trigger volatility in share prices.
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Understanding Aggressive Mutual Funds
Aggressive Mutual Funds is a pool of investment that offers investor return above the average return of the market. But these funds seek higher risk tolerance ability of the investors.
That’s why only those investors think about investing in Aggressive Mutual Funds who are ready to take the risk.
Though, these funds are likely to do better because the major goal of Aggressive Mutual Funds is to invest in a company with high growth prospects.
If the company is truly working well in the market, it is more likely to deliver a higher rate of return. And that makes Aggressive Mutual Funds successful for investors.
These funds follow forward-looking assumptions. Such as the managers of these funds take an in-depth overview of the market and the company alongside which is steadily performing best.
Only in rare unfortunate condition, investors lose their invested amount. That’s why these funds have been kept aside from the standard mutual fund category and being called aggressive growth funds.
However, investors investing in these funds should never forget analyzing the entire metrics related to risk and return.
A thorough understanding of the company and market can help one in taking the best investing decision.
How does an Aggressive Mutual Fund Works?
Investors who are willing to invest in Aggressive Mutual Funds can see higher volatility in the share prices (this volatility is measure by Beta).
However, as compared to the normal growth strategy, the volatility in the stocks pooled in aggressive mutual funds remains higher.
For instance, the Beta can go up and down as compared to the rest of the market. In simple words, if the normal market has denoted with a beta of 1.00.
On the other hand, you’ll see the aggressive growth fund is indicating higher Beta more than 1.00.
Things to Consider before Investing in Aggressive Mutual Funds
Let’s have a look at the most critical segment that every investor must take into account before investing in these funds.
Make sure you’re very clear about your investment goals. Only then it is worth it to move ahead. A proper and well-planned financial goal encourages an investor.
It helps them to stay focused on investing. But while setting the investment goal, it’s vital to align the investing objective.
That’s why it becomes important for every investor to pick the fund wisely that meets your goals.
It is another very critical segment to consider before reaching any final decision.
One can expect high corpus in the equities. That means you’ll have to wait a prolonged time because equities are highly volatile.
Hence, if you want to generate a good amount of return, make sure you’ve set an investment goal for a long tenure.
Though investing for a longer-term is also the best way to put off the volatility risk.
For most of the new investors, the higher return might be the striking thing that forces them to invest. But make sure that any investment doesn’t guarantee the returns.
Even though the stocks of a company have continued to provide a higher return, still it’s a subject of uncertainty that in future you’ll get the same rate of return.
It can change over time, especially if you’re investing in debts. So you can’t be fully assured.
These funds come with higher chances of earning above-average market returns. But you should figure out first your risk tolerance power.
Aggressive Mutual Funds allow traders to invest in both equity and debt. However, these funds carry higher return. That’s why the higher risk is a very obvious thing that you can’t overlook.
The up and down in Net Asset Value of the funds sometimes decides the risk associated with an investment.
Sometimes it can be a moderately risky investment. Also, the investment made in a low-quality debt instrument ends up making the portfolio quite riskier.
Fund houses which manage the Aggressive Mutual Funds charge fees from investors for managing their funds.
So make sure you’re already aware of this point. And if you want to invest in Aggressive Mutual Funds, don’t forget taking the overview of the expense ratio.
If you’ve invested in a mutual fund with a higher expense ratio, it’ll bring a significant decline in the ultimate returns from an investment.
That’s why checking the cost on a particular fund becomes essential to consider.
If taxation is a big concern to you, you can choose Aggressive Mutual Fund for investment in the equities.
Short term capital gains can invite higher tax as compared to the gains from long terms of investment.
For instance, if you’re investing for a one year, the gains are taxable at 15%. But if you’ve invested for a longer-term or more than a year, your gains are taxable at 10% only.
Gains below INR 100,000 are free of taxes.
Who should Invest in Aggressive Mutual Funds?
As said before, Aggressive mutual funds invest in both debt and equity instrument. Still, the majority of the investments in these Mutual Funds are made for equities.
Though, the reason behind it is very obvious. Equity is the most popular option among investors for a long term investment plan.
It keeps the risk minimal for a trader and keeps putting off the effects of volatility in the market. But it’s only possible if you can give your investment a good time.
You should only proceed with investment in Aggressive Mutual Fund if you’re ready to wait for a total of 5 to 7 years minimum investment horizon.
Though you can also pick the debt instruments, but they seek your higher risk tolerance capacity.
Investments in Aggressive Mutual Funds are prone to market volatility. That’s why investing for a long term is the only way out to overcome the volatility conditions.
In the lack of disciplined scenario, an investor can lose his entire money. But it doesn’t mean that waiting will provide you with the desired results.
Many times, market falls due to an unexpected crisis that scatters the economy completely. That’s why the investment can adversely affect your financial position.
In most instances, fund managers invest in low-quality security owing to boost return in the portfolio, which often invites default risk.
Therefore, it becomes vital for an investor to go through the fund thoroughly and take decision accordingly.
Alternative to Aggressive Mutual Funds
For an average investor with low-risk tolerance abilities, of course, investing in Aggressive Mutual Funds isn’t the right way to go.
All Aggressive Mutual Funds are categorized growth funds. But not all funds deserve to be named as a Growth Fund because sometimes a fund may perform extremely bad.
That’s why these funds can not be the ideal option for all investors. Only younger investors who can take more risk can proceed with investment in Aggressive Mutual Funds.
For risk-averse investors, conservative funds can be a great option as these funds focus on fixed assets.
Aggressive Mutual Fund Categories or Types
For investment in equity, one can either choose SIP for investment in EMI per month or deposit lump sum amount. The famous categories that fall into Aggressive Mutual Funds are as follows –
- Mid Cap Funds
- Large Cap Fund
- Large and Mid Cap Funds
- Multi-Cap Fund
- Small Cap Fund
- Value Funds
- Focused Funds
- Thematic / Sector Funds
- Equity Linked Savings Scheme (Tax saver funds)
- Dividend Yield Funds
- Index funds
Aggressive Mutual Funds – Conclusion
Aggressive Mutual Funds or Growth Funds aims at capturing higher return. That’s why investors who invest in these funds play on a higher risk level.
The positive relationship between risk and return in the financial market makes it a subject of concern.
If the company is offering a higher return, then it directly implies that there’s a great degree of risk coupled with it.
In most instances, fund managers add low-quality assets in the portfolio to add more weight in returns. It makes the entire portfolio highly risky.
So make sure you first check out the various asset classes added into the portfolio.
Also, an aggressive funds consists of high volatility, and the only way to rise above is to invest for a longer-term.
So don’t forget to consider these little things, only then you can come up with the best decision.
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