According to mutual fund advisors, ELSS is the best possible introduction to mutual funds. Firstly, they will help you save taxes and secondly, ELSSs have a mandatory lock-in period of three years. This helps first-time investors to weather volatility, typically associated with the stock market.
Aggressive hybrid schemes
What if the investor is not looking to save taxes? well, Most mutual fund advisors would suggest aggressive hybrid schemes or equity-oriented hybrid schemes to first-time equity investors. These schemes invest at least 65 per cent- 80 per cent of the corpus in equity and the rest in debt. The investment strategy makes it less volatile than pure equity schemes that invest the entire corpus in stocks, as the debt part of the portfolio provides a cushion during volatile periods.
If the investor already has sizeable investments in bank fixed deposits or company deposits or other fixed income instruments, some investment experts also recommend largecap mutual fund schemes to first-time investors. They believe that since these investors already have large investments in debt, there is no point in taking another extra exposure. Largecap schemes are relatively safer than other pure equity schemes as they invest only in the market leaders.
If you have made up your mind to invest in equity and ready to face short-term volatility, you can consider investing in multicap schemes. Yes, they may be a little more volatile than largecap schemes, but they also have the potential to offer you slightly superior returns. These schemes invest across market capitalisation and can change their exposure in various market caps according to market condition.