I am new to investing in mutual funds, so how should I do my research and what should be the parameters which I should look into before selecting a mutual fund?
Anup Dwivedi, Agra
Welcome to the world of mutual fund investing. Your inquisitiveness to invest in mutual funds will take you a long way. For a first time investor, the choice of investing should be in a fund that is easy to understand and less volatile. If you are a taxpayer, you should definitely choose the equity-linked savings scheme (ELSS) to start with. These are diversified equity funds, in which investments are eligible for tax exemptions under Section 80C of the Income Tax Act up to Rs 1.5 lakh in a financial year. These funds also have a three year lock-in, which means you can consider exiting your investments after three years only. To make the most of your investment in these funds, try and invest in lump sum even if it is 2-3 times in a year. This is a better approach to investing than SIPs when investing in ELSS. The lock-in ensures investment discipline, which will go a long way.
The other type of fund that you could invest in regularly over time is balanced funds. These are funds with a mix of equity and debt allocation which takes into account the necessary asset allocation and are also rebalanced from time to time to check on the basic tenets of investing – sticking to asset allocation which will ensure that you develop a habit of sticking to a way of investing which will work for you in the long run. The good part with hybrid or balanced funds is that, when there are gains in equity above the threshold, the exposure is reduced by selling this gain out and deploying it into debt and vice versa. This way the balance is maintained and protected irrespective of the stock market movements.
