The difference is the allocation to stock with different market capitalization over a three year period.
I am planning to invest through SIPs in mutual funds and have short listed six tax planning funds in which I can invest Rs 5,000 every month. I am looking for a low risk investment as it is my first mutual fund investment. I want to invest in these with a 3-, 5- and 10-year tenure to suit my requirement after each of the time period. I would also like to know more on ELSS funds, mid- and large-cap funds; should I invest in them or ELSS?
Prachi Garg, Gurgaon
Your plan of investing in tax planning funds or equity-linked savings scheme is a smart way to invest in mutual funds. Tax planning funds offer long-term capital appreciation through investments in equity and also provide tax deductions on investments up to Rs 1 lakh in each financial year. Investments in these funds come with a three year lock-in to claim the tax deduction.
The difference between large-, large and mid-cap and mid and small-cap funds is the allocation to stock with different market capitalization over a three year period. For instance, large-cap funds are those that have more than 85-90 per cent of assets in large-cap companies over the last three years, large and mid-cap fund have about 45-50 per cent of assets in mid-cap companies and mid and small-cap funds are those that at least have 65 per cent of assets in small and mid-cap companies. Based on such allocation the risks also vary across each fund category, and a large-cap fund is less risky in comparison to a mid- and small-cap fund.
Your investment in a fund should be based on your investment goal, the time frame for which you are investing in and the investment risk that you can take. For long-term financial goals that are for five or more years you should consider building a portfolio of funds across categories and invest in them regularly and assess the progress made by your investments regularly.