Tax-saving funds are typically simple to understand and make for a great first investment in mutual funds. As a new investor, you’ve probably invested or been recommended to invest in PPF and other fixed income investments. Equity based investments would be your best bet since equity is the best type of long-term investment (of course remember performance and star rating as great parameters), and since mutual funds are the easiest and safest way to invest in equity, you should choose an equity fund.
Now that we have a way forward, here are two types of funds suitable for any newbie investor.
TAX SAVING FUNDS
Investments of up to Rs. 1.5 Lakh in Equity-Linked Savings Schemes (ELSS) are eligible for tax exemption under Section 80C of the Income Tax Act. But with a three-year lock-in period, ELSS ensures you’re thinking long term.
Combine equity and debt investments in a certain ratio, where the fund manager will typically disinvest from holdings that have gained more and invest in holdings that have gained less, also called asset rebalancing.
Gains made in equity are protected by debt, making them safer than pure equity funds. They gain well when the market gains but when the market falls, they fall less sharply, hence protecting gains made in better times.
Either one of these funds will ensure the course of how you invest. Just remember to keep it simple and long term. performance and risk.
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*Mutual fund investments are subject to market risks, read all scheme related documents carefully.