I am 25-years-old and in my first job, I wish to invest in five mutual funds. Is this a correct approach?
Shekhar Sathe, Nagpur
It is encouraging to note that you are considering investing in mutual funds at the start of your career. However, the approach you are taking is incorrect. For a first time investor, you should look at the amount of money you can invest each month, set a financial goal to save for and also factor the risk that you can take with your investments. As a first time investor, you could consider investing in a balanced fund like ICICI Pru Balanced. If you fall in the tax net, you should consider putting your money in an equity-linked savings scheme (ELSS), in which investments qualify for tax benefits under Section 80C. These investments come with a three year lock-in, which means when you invest in these you can redeem the investment only after three years. When investing in diversified equity funds, the diversification comes from the fund type and style adopted by the fund manager in the manner in which they manage the fund and not in the number of funds you invest in. If you are assuming that by investing in five funds, you will be able to gain from diversification – think again, because doing so will only amount to diversification in number and no more.
