Diwali festivities are still going on and apart from sweets and gifts, there is also cash flow at this time of year. Some people get cash from relatives and some people get Diwali bonuses from their workplace. Instead of spending money on unnecessary things, it makes more sense to start investing it. However, many people, especially new investors, do not know where to invest this money. If you're also confused, here's some help from mutual fund advisors.
If you are an aggressive investor and can take risks, then it makes sense to start with a large and medium capital. These funds are among the safest options to invest in, especially if you are starting your own investment journey. Over the past three years, compound annual growth rate (CAGR) returns for large-cap funds have ranged from 12% to 16%, while mid-cap funds have ranged from 25% and 30%.
Large and mid-cap funds are less volatile compared to small-cap and even equity funds. If you are just starting to invest, the Canara Robeco Bluechip Equity Fund (Large Cap) and Emerging Equity Fund (Large and Mid) are safer options.
If you can also risk allocating a small capital, opt for funds with multiple capitals. A multi-cap fund is an open-end fund that invests in a variety of large, medium and small funds at the discretion of the fund managers. Trade the risks and rewards of different funds. Past three-year compound annual growth rate (CAGR) returns for the highest-rated multi-cap funds ranged from 14% to 20%.
If you want to start low-risk, try hybrid funds. These funds consist of both equity and debt instruments, providing the advantage of achieving better returns and mitigating risks. The compound annual growth rate (CAGR) return over the last three years for this fund category has been around 9% to 15%.
While Diwali brings a lot of expense, if you're one of the lucky ones to get a bonus or incentive, it won't hurt to spend it wisely. As always, with an incredible number of options available, it's not easy to choose one. If you have chosen Diwali as the beginning of your investment journey, you can start with a mixed or diversified stock fund. The former will be relatively less volatile than a full stock fund and the latter will give you exposure to a wide range of the stock world.
1) You have a long-term horizon (at least 5-6 years, the longer the better): So don't look at your wallet from time to time
If this is your first time investing and you recently received a Diwali bonus, it is suggested to invest in a mutual fund that provides taxes or ELSS (Equity Linked Savings System). This will not only help you claim tax breaks up to Rs 1.5 lakh but also help you on your wealth-building journey. However, if he's already taken care of his tax savings, he can invest in large-cap mutual funds, balanced funds, or multi-cap funds, depending on his risk appetite. It is important that investors remain invested in these mutual funds for at least five years or more.
The most important advice I will give to first-time investors is to be patient, not let market volatility affect your confidence, and ensure proper asset allocation and diversification.
The advice must align with your risk profile and many other things. However, the simple way to think about investing is: if you're young and nimble (20-40), invest in multi-cap funds and forget about it for at least 10 years. If you're middle-aged (41-52), invest in large and mid-sized funds and leave them out for at least five years. If you're retiring early (53 to 58), invest in balanced benefit funds and leave them out for at least three years.
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