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Should I invest in large cap funds or aggressive hybrid funds?

When it comes to investment, there is always a dilemma. Should you invest in large cap fund or hybrid funds? This is one of the most common questions that many investors ask, particularly when they are just starting their journeys towards building wealth for the long haul. If you have just started investing, remember that you should have all the other bases covered before you finalize your mutual fund investment. You should first build your own contingency fund for covering emergencies such as salary cuts, health crises, job losses and so on. The emergency fund should be enough when it comes to covering your living expenditure for at least 5-6 months and if you have financial dependents, you should ideally aim for a sizable corpus. You can also start a SIP in a liquid fund or recurring deposit for this purpose as well.

Thereafter, choose insurance coverage carefully including life and health insurance coverage. Do not rely only on company provided coverage. Obtain separate coverage for dependents as well. Once these things are all taken care of, you can smoothly commence your investment journey. It is always a good strategy to clearly identify your specific goals, find out the time that you need to achieve the same and also put a figure to each one of them. Thereafter, work out how much you need to invest each month to accomplish your financial targets. Do not miss out on accounting for inflation while working out the targeted corpus for covering long-term objectives. Inflation should always be included since monetary value goes down with the passage of time. Now, you can think of whether to invest in hybrid fund or large cap.

Should you invest in large cap funds or aggressive hybrid funds?

Aggressive hybrid funds could be good options for investors who are generally averse to excessive risks. If you have a long-term horizon for your investment and have a more conservative approach towards managing risks while desiring wealth accumulation minus volatility, you may choose these fund schemes. These schemes usually deploy investments in a mixture of equity (approximately 65-80%) and debt (approximately 20-35%) on an average. Owing to the mixed nature of the investment basket, these schemes come with comparatively lower risks and volatility as opposed to pure equity plans which deploy 100% of investments across stocks. Hence, these schemes are suitable for new investors and cautious investors in equity.

You can always check out plans like the Mirae Asset Hybrid Equity fund or others if you are thinking to invest in hybrid funds. Large cap mutual funds, on the other hand, indicate those funds which deploy investments in sizably large companies or the top-100 companies on the basis of their market capitalizations. These companies are all market leaders in their respective business segments and they are more stable in comparison to other small and midsize organizations. These schemes are hence advisable for equity investors who are conservative by nature and are seeking to create wealth sizably over a sustained time period minus high volatility. You should always consult mutual fund professionals, financial consultants and advisors for selecting the best possible investments for your portfolio.

Some other things worth remembering

Along with checking out plans like the Canara Robeco Bluechip equity fund, you should keep in mind that post the recent categorization by SEBI (Securities and Exchange Board of India), previously equity-linked hybrid plans or balanced schemes are now known as aggressive hybrid funds. These schemes usually deploy approximately 65-80% of investments in stocks while 20-35% of the investment corpus is deployed across debt. Large cap mutual fund schemes usually invest 80% of the corpus in the top 100 companies, making them safer investments amongst other equity funds.

Post mutual fund re-categorization, aggressive hybrid funds will have an option for investing the equity chunk throughout multiple market capitalizations. This is up to the fund manager whether he/she wishes to steer towards any form of market capitalization. Large cap schemes, on the other hand, have a clear directive for investing 80% of their corpus in the top-100 companies. Mutual fund professionals are of the opinion that aggressive hybrid schemes may ultimately be safer since fund managers will have the option to shift their money towards debt whenever the equity market plunges. Investments made in large cap funds indicate 100% equity exposure and this means that large cap plans may be somewhat riskier in comparison to aggressive hybrid investment plans.

Aggressive hybrid mutual fund schemes usually provide ample freedom to managers of funds for booking profits seamlessly and switching between debt and equity, on the basis of prevailing market conditions. Yet, if investors were to adopt the same approach, they would naturally incur long-term or short-term capital gains taxes likewise. However, keep in mind that hybrid funds may have more vulnerability in certain scenarios, particularly if both debt and equity markets are impacted adversely. Large cap mutual fund schemes, on the other hand, have been performing better as compared to other equity categories. Long-term investors should not, however, take decisions on the basis of the current scenario. They should instead wait it out to observe market changes before signing on the dotted line.

If you are seeking a scheme for allocating assets and investing in a mixture of debt and equity, you should choose aggressive hybrid schemes as per several investors. The debt component of the investment portfolio and information will help in ensuring comparatively lower volatility as compared to pure equity schemes. Large cap schemes are ideal for investments if you wish to rely solely on large organizations which are market leaders in their respective segments. This ensures slightly higher safety as well.

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