When you’re looking at investment options in equity based mutual funds, you’ll come across many. They’re like finding the right life partner. Choose wisely, basis your own risk tolerance and return expectations.

Lowest risk, lowest returns.

Debt based Funds

If you’re looking for stability, with decent returns but minimal risks, it’s best to look at debt-based equity funds that offer a fixed rate of return and maturity date. A great option if you’re looking for a regular passive income with minimal risks.

A popular fund in this category is called liquid fund(s); as the name suggests, these funds are highly liquid since you can withdraw from the fund anytime with withdrawals getting processed in typically 24 hrs. Great if you are trying to build that Emergency Fund of yours.

Balanced risk and returns.

Hybrid Funds

If you’re looking at higher returns than debt-based funds, hybrid funds might be worth a look. These invest in equity and debt, by distributing, a % of assets in shares and the rest in debt (like bonds), reducing the risk while giving incrementally better returns.

Hybrid funds are great if you’re looking to take slightly bigger risks to get better returns.

Low risk, high returns.

Large Cap Equity Funds

Large Cap Equity Funds invest only in the top 100 companies (think Tata Group, Reliance, etc.), making the fund less volatile to market price fluctuations.

A great option for you, if you don’t want to take too much risk but keen on investing in equity-based funds.

Highest risk, higher returns.

Small Cap Equity Funds

Small cap companies are slightly more sensitive to movement in the equity markets hence with higher upsides or returns comes higher risks.

A great option if you want to take some additional risk to get higher returns. You can start with investing a small % of your portfolio in Small Cap funds and when you gain some confidence, increase that %

High returns, Saves Tax

Equity Linked Savings Scheme

ELSS funds provide investors with the dual benefit of tax saving as well as returns from equity investments. You can potentially save upto Rs.46,800 in taxes annually by investing in ELSS funds.

They allow you to save on taxes while having the lowest lock-in period of 3 years. Popular with salaried investors who’re also looking at tax savings.

Investments are a great way to create passive income and wealth. Similar to finding a life partner, it’s the best to take some time to understand the various options you have, research and decide what works best for you- More stability or higher returns ? Or maybe a bit of both.

And don’t worry, if you’re still making up your mind, take smaller steps in your relationship with mutual funds with a Systematic Investment Plan (SIP). You can start investing every month from as low as Rs.100 on Freecharge.

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