Mutual Funds have picked up ubiquity post demonetization following slicing of investment account and Fixed Deposit (FD) rates. Banks were flush with money as an ever-increasing number of residents saved cash in sparing and current ledgers. So banks cut reserve funds bank and FD rates.
With even little sparing plans offering less premium, individuals raced to put resources into shared assets which guaranteed higher returns. Government-supported battle ‘Shared Funds Sahi Hai’ likewise advanced interest in common subsidizes.
Mutual Funds For Risk-averse Investor
Are you the kind who is willing to settle for lesser returns rather than risk losing money? You are then risk-averse. You could invest in Debt Funds. Debt funds invest in fixed income instruments which has less risk and also give decent returns.
You can invest in Liquid Funds, which are debt funds that invest your money in short-term money market instruments like Treasury bills, Government securities, CDs and commercial paper with a maturity of 91 days. Liquid funds give higher returns than SB accounts, around 6%, and can be easily withdrawn in an emergency.
Monthly Income Plan
Consider an investment in MIP (Monthly Income Plans), which are also a type of debt fund. These funds invest 80-90% in highly safe debt (bonds) and the remaining in equity. The debt portion carries lesser risk and the equity portion gives decent returns. MIPs have given around 8-10%% compounded annual returns in the last 10 years.
Debt funds are more tax efficient than bank FDs and give higher returns. If you stay invested in debt funds for 3 years or more, your long-term capital gains enjoy indexation benefits. Gains are taxed at 20%, but you get the benefit of inflating the purchase price of debt funds, using the cost inflation index to save tax.
Mutual Funds For Risk-curious Investor
A risk-curious investor is willing to accept some risk while investing but wants slightly higher returns. If you are risk-curious, you could consider an investment in balanced funds also called Hybrid Funds.
Equity hybrid funds
Consider an investment in equity hybrid funds that invest at least 65% of your money in equity (stocks) and the remaining in debt (bonds). The equity portion makes sure you get higher returns than most financial instruments. The debt portion cushions your investment in case of the stock market crashes.
Something great about equity hybrid funds is if you stay invested for a year or more, long-term capital gains are absolutely tax-free.
Mutual Funds For Risk-taking Investor
If you are a risk-taking investor, you accept high risk for high returns. Diversified Equity Funds are just right for you.
Diversified Equity Funds
An investment in diversified equity funds means investing your money across different sectors like financial services, pharma, automobiles and so on. Your investment of Rs 1 Lakh is diversified (spread) across different sectors. If you stay invested for more than a year, your gains called long-term capital gains are tax-free.
Mutual funds which invest in a particular sector or industry like banking, pharma, FMCG or technology are called sector funds. These funds take exposure to a single sector and are very risky.