Is it a good idea to invest in equity oriented balanced mutual funds as a first time investor?


#1

Is it a good idea to invest in equity oriented balanced mutual funds as a first time investor?


#2

There is no hard and fast rule as to which is the best investment instrument for new investor. It all depends on your financial outlook, finances, expectations and risk bearing capacity.

Yes balanced mutual funds are a good option for many investors because balanced mutual funds are intrinsically hybrid funds that invest in both equity markets as well as in debt instruments. The advantage of balanced funds is that fact that they avoid concentration in one specific sector making them more prone to offer decent results even if one sector undergoes a bear cycle or a negative market sentiment. Equity-oriented balanced funds also offer the advantage of tax benefits in the long term as capital gains.


#3

I have been suggested by colleagues at work to consider ELSS Funds for tax saving. Is it a good idea? What are the advantages of Equity-linked savings schemes?


#4

Your colleague has given you good advice as Equity-linked saving schemes (ELSS) are diversified equity mutual funds offering tax savings under Section 80C of the income tax act. Before you get all ready to invest in ELSS, it is essential to know that they are equity funds and have a higher risk factor associated with them compared to other investment options like the PPF.
Being equity linked fund, there is however no guarantee of returns as returns mirror the stock markets although ELSS funds with good fund managers have made substantial gains in the past. On the positive side, ELSS funds have a three year lock in period which is amongst the shortest amid all tax saving instruments covered under section 80C. ELSS funds have both dividend and growth options making it ideal for investors with different financial plans.


#5

Would suggest to decide in which mutual funds investment needs to be done depending on the income and the requirement. There are varied mutual funds to choose from - Equity Funds, Debt Funds, Hybrid Funds, Funds of Funds Schemes etc.


#6

Hi Mahi,
Main advantage of ELSS is an ideal instrument for tax saving with capital appreciation, also in ELSS fund have dividend & growth options, in growth scheme investor get lump sum amount after 3 years & in dividend investor gets regular dividend.

Recently I had visited JPMorgan Alphabet blog http://www.jpmalphabet.com/blogs/elss-a-smart-way-to-save-tax to understand all about ELSS & investment strategies, you
might want to have a look at their website.


#7

Hi Viraj,

Balanced funds invest in a mix of equity and debt instruments. They are considered less risky when compared to equity Mutual Funds. However, as a first time investor, you can consider both balanced funds as well as diversified equity funds. Both these types of funds have lower risks when compared to other Mutual Funds. If you have a low risk appetite, you could start with debt Mutual Funds. They invest in fixed-income securities.

Cheers,
BB Expert


#8

Hi Dhyan,

Mutual Funds invest in stocks on your behalf. Investing in a Mutual Fund is the best way to start your journey into the stock market. Equity diversified funds are the ones you should start with. These funds invest across different companies so your risks are lowered. The portofolio concentration or the risks of investing too much in a particular stock or sector, is less in case of Equity diversified funds. You can even opt for an Equity Linked Savings Scheme (ELSS). This will help you save tax. Want to invest in Mutual Funds? Click here.

Cheers,
BB Expert


#9

I think these ideas are quite interesting to note. Thank you


#10

Hi,

Equity Mutual Funds are a good way to invest in the stock market. There are different kinds of equity Mutual Funds. As a first time investor you could consider investing in large-cap Mutual Funds and Equity Linked Savings Schemes (ELSS).

Large-cap Mutual Funds

Large-cap Mutual Funds invest mainly in companies that have large market capitalisation. These companies are a part of major stock indices such as the BSE Sensex, Nifty 50, BSE Top 100, BSE Top 200 and so on. Investments in large-cap Mutual Funds are considered the safest among all equity fund categories because the companies with large market capitalisation are well equipped to weather negative market conditions. However, during a bull market, investors cannot hope to expect high returns from large-cap Mutual Funds.
ELSS

These are diversified equity Mutual Funds that offer investors tax benefits. Under Section 80C of the Income Tax Act, investments up to Rs. 1,50,000 in ELSS are eligible for deduction from an investor’s gross total income. ELSS has a mandatory lock-in period of 3 years from the date of investment. ELSS investments, however, have the shortest lock-in period among all tax-saving investment instruments. After the expiry of the 3-year lock-in period there is no restriction on the redemption of your investments.

Want to invest in Mutual Funds? Click here.

Cheers,
BB Expert