• HDFC
• 26 Jul 2018
• MF Product

HDFC, Tester

 

Consider the possibility that you have had a windfall and received quite a bit of money. It could be from the sale of a property, or an increment bonus or maybe even an inheritance. Now, you want to invest this money and maximise your returns. What is the first thing you do?

 

Take stock of your appetite for risk, the returns you expect and the time period for the investment to grow. All this depends upon your financial goals. With these factors and some expert financial advice, you can invest in a multitude of financial avenues such as debt mutual funds, equity funds, balanced funds, liquid funds, and even equities, if you have experience and understanding of shares. You can consider engaging the services of a financial planner to help map this out for you.

 

Let us consider the different ways in which can invest in mutual funds in order to meet your specific financial goals:

 

1. Short-term goals

 

If you are a new investor, looking at a time period of one to three years, with safety and decent returns along with easy and exit, then you should consider investing a portion of your lump sum in short term debt funds. These debt funds usually invest in fixed income like government and corporate bond papers, and treasury bill.

 

2. Medium-term goals

 

From what remains of the lump sum, consider investing some of the money in balanced funds, and stay with it for at least four to six years. Balanced funds invest in both, debt as well as equity. Depending upon which type they lean towards, these funds can either be debt oriented or equity oriented, combining the best of both –risk and returns of equities, and the safety of debt.

 

Equity oriented funds will reward you with their ingrained volatility of equities, but they need to be picked carefully, while debt-oriented funds are less volatile, and do invest a small portion in equities.

 

3. Long-term goals

 

In order to see gains in the long run, it makes sense to invest a certain portion of your lump sum in equity funds. These schemes invest only in equities, which are shares of companies. This is a volatile market, as mentioned earlier. If you are looking to make a quick buck and a quick exit, then this may not be the right option for you; speculation does not help here. Equity funds have a higher return in the long run, so if you want to create wealth over a long-term, then you should consider this option.

 

There are many types of equity funds that you can choose from. This usually depends upon the size of the company they invest in.

 

Large-cap funds invest in companies with large capital proven track records, and usually have stable returns.

 

Mid-cap funds invest in shares of mid-sized companies. The returns here are slightly higher than large-cap funds as these companies are smaller and have growth potential.

 

Small-cap funds invest in small companies with a lot of growth potential. It requires expertise to pick the right company here, so you will have to rely on the fund house to make the right choices.

 

Multi-cap funds invest in all three market cap sizes, but in some specific sectors such as pharmaceuticals, banking and energy, among others.

 

Equity Linked Saving Schemes or ELSS are tax saving mutual schemes. These were introduced to encourage investing. These schemes invest in stocks and qualify for tax deductions and benefits under the Income Tax Act, 1961.