Mutual Funds for beginners

Everybody wants his money to grow and to make that happen Mutual funds are your best option. For beginners, who don't have much knowledge about market don't know where to invest. To know different types of investment you can read "Types of Investment". To make your money work for you, you don't need to be very smart, anyone can do this. You can do this. You just need to be disciplined with your investments. SIP in a Mutual fund is a very simple way to achieve discipline . I would say SIP in Mutual fund is best for beginners. Eventually you may gain some knowledge and can play with MFs and shares. Lets restrict this post to types of MFs for beginners.

Tax Saving Fund

Young earners may be paying tax for first time in their life and they hate it. Believe me, everyone hates it. In pursuit to save tax, they are often mislead to buy LIC or endowment policy, which is not a wise decision. You must choose Equity Linked Tax Saving Scheme (ELSS) to save tax. Question comes, Why ELSS ? 

• You may not be exposed to equity and it will provide some exposure to equity. Compared to other tax saving schemes like Tax saving FD, PPF, NSC etc, ELSS offers higher returns. Best fund has given 25% return, while worst fund has given 15% return for 5 year period. Even worst fund has given much higher returns.
• Mutual funds are the easiest and safest way to invest in equity. You should invest lump-sum amount or start SIP in  ELSS. ELSS funds are a blend of tax saving and equity.
• ELSS have low lock-in period of 3 years. Other instruments have lock-in period ranging between 5 years to 15 years. Capital gain after lock in period is tax free

Some of the best performing ELSS funds are -

 - DSP BlackRock Tax Saver Fund

 - Birla Sun Life Tax Relief 96

 - Axis Long Term Equity Fund

Balanced Fund

These funds are also known as Hybrid funds. Balanced funds are combination of equity and debt in a certain ratio. Balanced funds are very good option if you don't want to have different funds for euity and debt. Fund managers of balanced funds do the re-balancing for you. Fund manager typically dis-invest from holdings that have gained more and invest in holdings that have gained less. So, we can say gains from equity are protected by debt.

Balanced funds are safer than pure equity funds. They gain well when the markets gain but when the markets fall, they fall less sharply, thus protecting the gains that were made in the good times. You can expect 15% to 20% from good performing funds.

These funds are tax free after a period of one year. Some of the good performing funds are - 

 - ICICI Prudential Balanced Fund

 - HDFC Balanced Fund

 - SBI Magnum Balanced Fund

Once you are familiar with Mutual funds and your risk appetite increases than you can have samll and mid cap funds in your portfolio.

Happy Investing!!!