You love investing in mutual funds. Your money grows in no time. Yes, investing in equity mutual funds, can give you high returns. But there’s a small problem. Investing in equity mutual funds can also be quite risky. If you do not understand equity mutual funds or invest without doing research, you could lose a lot of money.
Investing in equity mutual funds can be an excellent way to achieve your financial goals. All you need to do is handle risk. Understand that an investment in equity mutual funds gives high returns, but at high risk. An investment in mutual funds comes with a disclaimer “An investment in mutual funds is subject to market risk. Please read the offer document carefully before investing.”
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You must have heard the saying, “Do not put all your eggs in a single basket.” Equity diversified mutual funds work in the same way. When you invest in an equity diversified mutual fund, the fund manager invests your money in stocks of different sectors.
Your money might be invested in stocks of pharma Companies, oil and gas, automobiles, infrastructure, banks, housing finance, energy, IT or travel. Your investment has exposure to different sectors and is well protected. When one sector is doing badly, another sector could perform well. Your investment stands protected.
Remember: An investment in equity diversified mutual funds gives you tax benefits. If you stay invested in an equity diversified mutual fund for a year or more, your profit/gain is called long term capital gain. Long term capital gains are not taxed.
Equity linked savings schemes popularly called ELSS, is a type of mutual fund. The fund manager invests most of your money in stocks. An investment in ELSS not only helps you grow your money, you also save on tax. An investment in ELSS has a lock in period of 3 years. (You cannot touch your money for 3 years). You get a tax deduction up to INR 1.5 Lakhs a year, under Section 80C on your investment in the ELSS. If your money increases and you withdraw at maturity, there is no tax.
A balanced fund also called a hybrid fund, is a type of mutual fund, which combines the benefits of both debt (bonds) and equity (stocks). Hybrid funds can be separated into equity hybrid funds and debt hybrid funds. Equity hybrid funds invest more than 65% of your money in equity. The rest is in debt (bonds). Debt hybrid funds invest at least 75% of your money in debt (bonds) and the rest in equity. Equity hybrid funds enjoy the same tax benefits as equity funds.
Mutual funds come in various categories and you have taken a look at some of them. All you need to do, invest in mutual funds after understanding risk.
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