In the early phase of investment, generally beginners have investments in Fixed Deposits, PPF and other fixed income financial instruments. We would suggest you to invest in equity funds and mutual fund provides the easiest and safest way to invest in equity funds.
For beginners in the mutual funds industry, balanced funds and Equity Linked Savings Scheme (ELSS) funds are considered ideal for investors.
Balanced funds: In these funds, major part is invested in stocks but a certain part of money is invested in debt securities to limit the risks. These funds are known as hybrid funds. They are considered ideal for first time investors who want to invest in stock market and at the same time keeping the overall risk level low. When the markets follow a upward trend, the returns increases whereas when the market fall, they fall less sharply as they are protected by debt holdings. It is better for beginners to invest in a diversified portfolio in order to reduce the risk. Once you understand the functioning, process and risk exposure, then you can move towards other funds. Please go through the top performing balanced or hybrid funds:
Equity Linked Savings Scheme: These funds are also known as tax savings mutual funds or ELSS funds. They are the most popular in the equity funds category. These funds enable you to get tax benefits under section 80C of the Income Tax Act. Investor can save up to a amount of 1.5 lakhs by investing in these funds. But these funds have a lock-in period of 3 years. Investors cannot redeem their money before the maturity date. Most of the mutual funds in India generally don’t have a lock-in period but ELSS funds are exception in this aspect. Below are the top performing ELSS funds:
Investors are unable to invest in equities due to lack of stock market knowledge, these funds are the best option. They are managed by the professional fund managers. The overall risk of investing in these funds can be minimized by diversifying the portfolio. By investing in these funds, one can accumulate good amount of wealth over a period of time.
The best type of mutual fund for a beginner to invest in balanced funds. Balanced funds, often called hybrid funds, own both stocks and bonds. They are the best since they maintain a balance between both the asset classes. These are ideal for investors who look for a mix of safety, income and capital appreciation.
Some of the tips for a first time investor in mutual funds are:
-Determine what type of portfolio you want to hold, that is, decide the asset allocation
-In order to ensure you pick the right type of mutual funds for yourself, determine your reason for investment, financial goals, time period, risk appetite, consider the age factor and number of dependents, potential returns.
It is usually better for beginners to invest in a diversified fund in order to reduce risk. Once the investor gets used to the process and understands it well, he can gradually get more exposure and move towards riskier options.
There are various parameters which help in determining the best mutual fund as per the investor's preferences. Some of these are:
-Evaluating the past results: There are a few key factors to be taken into consideration in terms of past performance of a fund, like were the results consistent with market results, volatility level of the fund, and turnovers.
-Ratio Analysis: The ratio of risk and return is one the most important parameters. Funds which have high risks involved but give low returns are the avoidable funds. While those with least risk and maximum return are favourable.
-Charges: There are different types of fees charged to an investor. It is necessary for the investor to be aware about these costs. The higher these charges, the lower will be the return.
-Assets Under Management: Net assets under a fund give an idea about the confidence level of investors in the mutual fund. Schemes with high AUMs are better. Therefore, schemes below the average AUM should not be considered.
-Exit Load: Exit load refers to the amount that is deducted in case you withdraw money before the maturity of the scheme. It is important to know the percent you might have to lose in case of early withdrawal.