Flexi-cap vs aggressive hybrid fund: Where to invest Rs 1 lakh?

I want to invest Rs 1 lakh for my five-year-old son's future. Should I invest in a flexi-cap fund or an aggressive hybrid fund? Further, should I invest in a single fund or multiple funds through SIPs (systematic investment plans)? - Anonymous

Given that your goal will be achieved in the long term, both flexi-cap and aggressive hybrid funds are ideal. Instead, where you should invest will depend on your risk appetite.

A flexi-cap fund invests across large, mid and small caps, providing exposure to companies across various sectors and sizes. Such funds adjust their portfolios based on the prevailing market conditions. They are relatively more stable compared to mid- and small-cap funds. Thus, invest in a flexi-cap fund if you seek long-term growth with moderate risk. Further, as flexi-cap funds are diversified equity funds, investing in just one fund may be adequate to achieve your goal.

Aggressive hybrid funds, on the other hand, invest in both equity and debt instruments, with a greater allocation to equities. They offer a balance of growth and safety, as the debt component helps cushion the impact of market downturns, while the equity component offers inflation-beating returns. If you are someone who seeks exposure to equities but wants to avoid the volatility that comes with pure equity funds, an aggressive hybrid fund may be suitable for you.

However, if you've been investing in equity for four to five years and don't get scared by market swings, an aggressive equity strategy may be better for you. You can invest in more aggressive fund categories, such as mid- or small-cap funds. They can help you earn higher returns over the long term, especially if you have a 10-15-year horizon.

Quick recap

• If you have a long-term time horizon with a moderate risk appetite, you can consider flexi-cap funds.
  
• If you get anxious with short-term market swings and haven't invested in equities before, aggressive hybrid funds can be a good starting point.
  
• And if you have a long-term time horizon (10 years and more) and are used to the ups and downs of the equity market, consider mid- or small-cap funds.

Last but not least, don't invest your Rs 1 lakh in one go. Spread the money over the next 6-12 months to reduce risk.

Also read: Should I choose a flexi-cap or an aggressive hybrid fund to set up an SWP?