Aggressive growth mutual funds offer high returns in the equity market but also carry high risks.
These funds primarily invest in equity shares but may also include debt instruments. Investors with a higher risk tolerance can experience significant capital gains through these schemes; however, one should invest over an extended period for optimal returns.
High Returns
Aggressive growth funds offer investors who seek high returns an excellent option yet come with higher market risk than diversified investing approaches. Therefore, investors must understand these funds’ risks before making their decision and assess the past performance of aggressive growth mutual fund schemes before selecting one as their investment of choice.
Investors looking to reduce risk should seek funds with a low expense ratio and experienced fund managers, which may have lower administrative expenses and hence costs imposed on investors by fund houses. Furthermore, professional fund managers tend to be more successful at meeting objectives.
Some aggressive growth funds offer reduced volatility by investing in stocks and bonds, creating a balanced portfolio that tends to outshine traditional growth-oriented funds during bull markets. They may also move some assets to cash or debt instruments should bear demands arise.
The ClearBridge Aggressive Growth Fund (FITLX) is an excellent example of a fund designed to deliver solid returns for aggressive investors. This fund has outpaced the S&P 500 during bull markets while trailing badly during 2008 and 2009. Manager Richard Freeman employs a strategy of selecting fast-growing large-cap stocks with expected faster-than-market growth rates; this has proven highly effective, as 9.35 percent has been returned over three years.
The best aggressive growth funds can deliver superior returns by taking advantage of higher capital gains from equity investments. While they are an excellent way to diversify your portfolio, their risk metrics must be regularly monitored; one way of doing this is learning about the three primary risk metrics used by mutual funds: standard deviation, Sharpe Ratio, and beta.
Diversification
As their names imply, aggressive growth funds offer high growth potential; however, this comes with greater levels of risk. Therefore, aggressive growth funds could perform exceptionally well during bull markets while suffering significant losses during bear markets. Consequently, they should be monitored frequently to ensure their risk remains within acceptable limits by reviewing three key risk metrics, including standard deviation, Sharpe ratio, and beta.
Funds that invest heavily in equity shares tend to be more volatile and should be diversified through SIP or lump sum investments for optimal portfolio diversification.
SIPs allow you to invest regular payments of a fixed amount over time, which offers rupee cost averaging and can reduce risk in turbulent markets. On the other hand, lump sum investments allow you to allocate large sums all at once – similar to how pension funds give capital investments over time.
Investors can select aggressive growth funds or other fund categories based on their preferences. However, it is recommended that your portfolio contain both options to remain flexible during market fluctuations.
These funds invest in stocks with higher growth potential, such as those in emerging industries or small but fast-growing firms. Furthermore, these funds often include stores from foreign countries to hedge against an eventual domestic market downturn.
Although aggressive hybrid funds carry higher volatility than other growth-oriented schemes, their portfolios contain less risk due to debt instruments included in their holdings. Furthermore, their management can tailor the amount invested in debt instruments in response to market conditions; during bear markets, for instance, they may increase spending on debt instruments to hedge risks while remaining within an acceptable total allocation percentage limit.
High Risk
aggressive growth funds offer high returns but are more prone to fluctuations due to investing in riskier securities or initial public offerings (IPOs) in pursuit of capital growth. Furthermore, they typically possess higher beta (a measure of how much a fund fluctuates relative to its benchmark index) than other growth funds.
It would be best to choose a scheme with an experienced fund manager to minimize these risks. A qualified manager will utilize various risk management techniques to meet fund objectives; furthermore, they should have an impressive track record in hitting investment targets. In addition, your fund’s expense ratio is an essential consideration – this charge covers operating expenses, including paying its manager’s salary – usually expressed as a percentage of total assets – the lower this ratio is, the better.
Attractive, aggressive growth funds typically invest in various debt and equity instruments, which helps reduce volatility and improve risk-adjusted returns. Furthermore, such funds may have greater exposure to small-cap stocks due to their more unpredictable price changes than large-cap stocks.
Aggressive growth funds are ideal for investors looking to increase their portfolios quickly. However, they’re unsuitable for all investors – and should only be used alongside a well-diversified portfolio to reduce overall risk. Since they tend to be more volatile than other mutual funds, these aggressive growth funds should only be considered long-term investments.
As with any investment, it is advisable to consult a financial advisor prior to investing in aggressive growth mutual funds. Furthermore, read all related scheme documents to maximize your savings. This way, you will make the best of your money and see greater returns with every penny spent.
Taxes
Aggressive growth mutual funds offer some of the highest market returns; however, they come with high risks and are unsuitable for all investors. These funds invest in small, medium, and large-sized companies based on ‘high risk/high reward’ principles – with increased chances of sudden growth as they tend to gain value quickly; however, investors must be ready for losses should their fund’s value decrease suddenly.
These funds typically don’t impose a lock-in period. Still, suppose you redeem your units before one year. In that case, they may incur an exit load fee from their fund management company (typically around 1%) and potentially other expenses such as commissions and transaction costs for trade execution, redemption, analysis of investments, advice provision, etc.
Investors should carefully consider the tax repercussions when investing in aggressive growth funds. While these funds are taxable as equity funds, their mix of debt instruments makes them less volatile than pure equity funds, and lower betas than other growth funds may lead to more significant short-term gains than others.
Like investors in any equity-based investment, those investing in aggressive growth funds may be subject to capital gains taxes; depending on their tax bracket, this tax could significantly diminish profits. Furthermore, investors should be mindful of secondary market taxes, which could apply when selling shares on secondary market exchanges.
Aggressive growth funds tend to correlate closely with the performance of stock markets, making them particularly susceptible to economic downturns and, as such, not suitable for investors who are risk-averse or require low-risk portfolios.
Investors searching for high-return opportunities should consider investing in aggressive growth funds. Such funds can generate excellent returns if appropriately diversified, making them a perfect addition to an already robust portfolio of investments.
