Skip to main content

Your first mutual fund is very important

Image
By

Your first mutual fund is very important

The first fund you buy plays a major role in making or breaking your belief in stock investing


 
Useful, simple to understand and easy to execute. These should be the qualities of your first mutual fund.
For beginner investors, this is generally best satisfied by tax-saving funds or balanced funds. Here's why. When you start investing in mutual funds, it makes sense to opt for a fund that invests mostly in equity. The reason for this is that you are likely to have no equity investments at all. New investors generally have bank deposits, the PPF and other fixed-income investments. Since equity is the best type of long-term investment, and since mutual funds are the easiest and safest way to invest in equity, it follows that the type of fund you should choose must be an equity fund.
There are two types of funds that are uniquely suitable as beginner funds. These are Tax Saving Funds and Balanced Funds.
Tax Saving Funds: Tax saving funds or Equity-Linked Savings Schemes (ELSS) are basically all-equity funds in which investments are eligible for tax exemption under Section 80C of the Income Tax Act. Under Section 80C, you can invest up to R1.5 lakh in a set of instruments, one of which is ELSS funds. Since they are equity funds, you should invest in them for the long term. In the case of ELSS funds, this long-term imperative is enforced under tax laws through a three-year lock-in. As a result, investors tend to have a good experience as they receive reasonable returns from these funds. Moreover, the tax-break acts as a natural boost to returns.
Balanced Funds: Balanced funds, also called hybrid funds, combine equity and debt investments in a certain ratio. In order to maintain this ratio, the fund manager will typically disinvest from holdings that have gained more and invest in holdings that have gained less. This of course is asset rebalancing.
Effectively, gains that are made in equity are protected by debt. The great advantage of balanced funds is that they are inherently safer than pure equity funds. They gain well when the markets gain but when the markets fall, they fall less sharply, thus protecting gains that were made in better times.
To sum it up, your experience with your first fund will in many ways set the course for how you invest. This is why you do not want to overcomplicate the decision. Keep things simple by going for an equity mutual fund that will help you realise higher returns. To realise tax savings from your investment, opt for an ELSS fund. Finally, think long term.

Comments

  1. AdyJune 12, 2020 at 3:55 PM

    Nice Article. Thank you for sharing the informative article with us. Stock Investor provides latest Indian stock market news and Live BSE/NSE Sensex & Nifty updates.Find the relevant updates regarding Buy & Sell....
    sales
    Gujarat Pipavav Port Ltd (GPPL)

    ReplyDelete

Post a Comment

Popular posts from this blog

Reality versus Fantacy

By
Reality 🆚 Fantacy If a friend with little farming experience told you that he planned to feed himself with food grown on a quarter-acre (1,000 square meters) plot, you’d expect him to go hungry. One can squeeze only so much from a small piece of land.There is, how- ever, a field in which grown-ups let their fantasies fly—in trading. A former employee told me that he planned to support himself trading a $6,000 account. When I tried to show him the futility of his plan, he quickly changed the topic. He was a bright analyst, but refused to see that his “intensive farming” plan was suicidal. In his desperate effort to succeed, he’d have to take on large positions—and the slightest wiggle of the market will quickly put him out of business. A successful trader is a realist. He knows his abilities and limitations. He sees what’s happening in the markets and knows how to react. He analyzes the markets without cutting corners, observes himself, and makes realistic plans. A professional tr...
Post a Comment
Read more

Emotional Trading

By
Emotional Trading Most people crave excitement and entertainment. Singers, actors, and professional athletes command much higher incomes than such mundane workmen as physicians, pilots, or college professors. People love to have their nerves tickled—they buy lot- tery tickets, fly to LasVegas, and slow down to gawk at road accidents. Emotional trading can be very addictive. Even those who drop money in the mar- kets receive a fantastic entertainment value. The market is a spectator sport and a participant sport rolled into one. Imagine going to a major-league ball game in which you are not confined to the bleachers. Pay a few hundred dollars and be allowed to run onto the field and join the game. If you hit the ball right, you’ll get paid like a professional. You would probably think twice before running onto the field the first few times. This cautious attitude is responsible for the well-known “beginner’s luck.” Once a beginner hits the ball right a few times and collects his p...
2 comments
Read more

How to really buy life insurance

By
When faced with the prospect of figuring out how much insurance to buy, most people pluck a figure out of the air - something that just seems adequate. Or another common practice is to rely on insurance agents to decide a policy and sum assured. This is obviously not the way to make this important decision. The only reasonable way of deciding what and how much insurance you need is to unemotionally create a financial plan that your family should follow if you die suddenly. Families also have to consider the impact of both parents passing away in an accident. The impact of such a tragedy could be greater than just the sum of two deaths occurring separately. Here are five things to consider. Consider these five factors when buying life insurance Time left to retirement: Before buying any term insurance plan, an individual must assess the time left to retire and what 'sum assured' will be sufficient. Time remaining to retire here does not necessarily mean retirement fro...
Post a Comment
Read more