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Which is the best mutual fund for newcomers?

ET Online|
Last Updated: Apr 23, 2020, 03.21 PM IST

Summary If you have any mutual fund queries, message on ET Mutual Funds on Facebook. We will get it answered by our panel of experts.

Which is the best mutual fund to invest on for starters? ELSS or other funds?
-Vignesh Kumar

Many mutual fund advisors believe ELSS or Equity Linked Saving Scheme is the best mutual fund category for newcomers to the stock market. They believe that the mandatory lock-in period of three years in tax saving mutual funds help investors to get used to the volatility typically associated with equity mutual funds. Once they see positive returns, they start investing in other equity mutual funds also with long-term goals. So, if you are looking to save taxes under Section 80C of the Income Tax Act, you may invest in ELSS funds.

Investments in ELSS funds qualify for tax deductions of up to Rs 1.5 lakh under Section 80C. A word of caution: do not invest with a three year horizon in these funds. You should always invest in equity mutual funds with an investment horizon of five to seven years.

What if you have exhausted your tax limit under Section 80C? You may choose relatively low risky equity categories like aggressive hybrid schemes, large cap schemes, multi cap schemes, and son on. If you are extremely cautious about investing in stocks, you may opt for aggressive hybrid schemes that invest in a combination of equity (65-80%) and debt (20-35%). These schemes are relatively less volatile than pure equity schemes. If you are a conservative equity investor, you should choose large cap schemes or schemes that invest in very large companies. If you know a little bit about equity investing and ready to take moderate risk, you may opt for multi cap mutual funds. These schemes invest across market capitalisation and sectors. They are riskier than aggressive hybrid schemes and large cap mutual funds.

We do not think newcomers should invest in mid cap, small cap, sector/thematic schemes, as these schemes can be extremely risky and volatile.

Best aggressive hybrid schemes
Best large cap mutual funds
Best ELSS funds
(If you have any mutual fund queries, message us on ET Mutual Funds on Facebook. We will get it answered by our panel of experts.)
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