A mutual fund is a form of capital collected by investors by investing in stocks, shares or bonds of any company. The investment process is managed by a professional fund manager
For most of us investing in mutual funds is an intimidating task and a lot of us are a dilemma to understand which mutual fund should we invest in.
So we at investify are here to your rescue. Our team of experts will help you understand the pros and cons of each mutual fund and guide you throughout the process to make the right investment decision.
TAX SAVING FUNDS
Tax saving funds or Equity Linked Saving Schemes are mutual funds which are eligible for a tax deduction of up to Rs.1.5 lakh under section 80C of Income-tax Act.
Here is a list of best tax saving mutual funds
- Aditya Birla Sun Life Tax Relief 96
- Axis Long Term Equity Fund
- Tata India Tax Savings Fund
- ICICI Prudential Long Term Equity Fund
- Franklin India Taxshield Fund
- IDFC Tax Advantage Fund
- L&T Tax Advantage Fund
BENEFITS OF INVESTING IN TAX SAVING OR ELSS FUNDS
Lock-in period: Lock-in period of 3 years among all the tax-saving funds.
High Returns: An ELSS can provide you returns ranging between 15%-18%. which is relatively higher returns than other tax-saving instruments.
Taxation: ELSS qualify for a tax deduction of up to Rs. 1.5 lakh under Section 80C.
SIP option: An ELSS is the only tax-saving instrument which comes with a SIP (Systematic Investment Option). With the SIP option, an investor can invest an amount as low as Rs. 500.
HIGH RETURN FUNDS
High return funds are those mutual funds that yield you high returns in the future but also involves higher risks. So these funds are for investors who are willing to take a high risk to earn a high rate of returns.
Here are few high return investment options to choose from
Direct Equity – Investing in equity or shares is volatile in terms of returns and the risk involve is also high. But one good thing with them is that if invested for long duration can reap you high returns.
Initial Public Offering – For any company to list its share on any exchange it has to come up with an IPO(Initial Public Offering)-The public is asked to subscribe to the share capital of the company at an issued price. Once the shares are allotted to the applicant's company becomes the part of the secondary market and investors can buy or sell.
Mid and Small Cap Schemes – Among all the equity funds Mid and Small-cap schemes are prone to higher volatility and are subject to higher risk.
Sectoral funds are an investment in specific sectors or themes and are recommended only to highly informed investors.
The overall objective of these funds is to invest in those sectors which have a high potential for growth in the near future.
Some of the top and best performing Sectoral funds
- IDFC Infrastructure Fund
- Aditya Birla Sun Life Banking And Financial Services Fund
- Franklin Build India Fund
FIXED RETURN FUNDS
Fixed return funds are those mutual funds which give you returns after a fixed interval – monthly, quarterly or half-yearly. The income is determined as per a particular rate and may not be a fixed amount.
Now let us understand what contributes to Fixed Return Funds
1.Debt Funds – Funds that invest in financial instruments like corporate bonds, debentures or Certificate of deposits or government securities where the fixed return is expected.
2.ETFs (Exchange Traded Funds)- To be very precise these funds are traded on stock markets of India (BSE & NSE). As an investor, you can buy as many units you want without restriction and they offer anytime liquidity through the exchange
3.Money Market funds –Funds only invest in money market instruments like commercial papers, commercial bills, Certificate of Deposits etc. The objective of these funds is to provide investors with low-risk returns and to invest in instruments that can be easily converted into cash and equivalent assets.
Balanced or Hybrid funds invest in both debt and equity instruments and you get the benefit of returns from both the instruments.
If you are looking to diversify your mutual fund portfolio balanced or hybrid funds are the best options to go ahead with. A strategic investment in both equity and debt instruments makes funds less vulnerable to the volatility.
The equity component of the fund will help you generate capital appreciation whereas debt component of the fund protects your fund from market volatility.
Here is the list of top-performing balanced funds
- ICICI Prudential Equity and Debt Fund – Direct Plan-Growth
- Mirae Asset Hybrid – Equity – GrowthAggressive Hybrid Fund
- SBI Equity Hybrid Fund – Regular Plan – GrowthAggressive Hybrid Fund
For a lot of us, both the terms Dynamic and Balanced funds are virtually interchangeable. Though the terms seem to be similar as both these terms have a mix of debt and equity in its portfolio. But here is what you need to understand. Unlike balanced funds, Dynamic funds show a huge variation in terms of the percentage of equity and debt instruments. The decision depends on the view taken by the fund manager.
With the everyday evolving economy dynamic funds offer you a major benefit. You are never sure of the market conditions and the major reforms in the country like GST and Demonetisation. So dynamic funds ensure that your profits are automatically monetized at regular intervals and also you are liquid when the market corrects and throws up opportunities.