Mutual funds are becoming a favorite asset class among investors to add to their portfolios for diversification and achieving financial goals. There are several types of mutual funds that can help individuals invest, grow money, and fulfill their ambitions.
From large-cap to liquid funds, investors can choose from a range of options and start investing via lump sum investment or the SIP route. They can also look for funds that offer wealth creation as well as tax savings.
What are ELSS funds?
Equity Linked Saving Scheme (ELSS) funds are equity funds that invest a major portion of their corpus in equity or equity-related instruments. ELSS funds are also called tax saving schemes as they offer tax exemption of up to Rs 150,000 from your annual taxable income under Section 80C of the Income Tax Act. As the name suggests, ELSS funds are an equity-oriented scheme with a mandatory lock-in period of three years. In recent years many taxpayers have turned to ELSS schemes to avail tax benefits. The income you earn under this scheme at the end of the three-year period will be treated as Long Term Capital Gain (LTCG) and will be taxed at 10% (if the income exceeds Rs 1 lakh).
It has complete flexibility to invest in all available options, which is available in a diversified flexi-cap fund. The portfolio manager can take a more long-term view on stocks, as the money coming into the fund is locked-in for three years. Experts also explained ways to choose an ELSS fund, such as quality, performance ratios, risk profile, financial goals, etc.
Features of ELSS Mutual Funds
Here are some of the important features of ELSS funds:
– Lock-in Period: It has a minimum lock-in period of 3 years.
– Equity Exposure: In this at least 80% of the investment is invested in equity.
– Tax Savings: Investment in ELSS is eligible for tax deduction of up to Rs 1.5 lakh under Section 80C.
– Market Linked Returns: It provides you market-linked returns and the performance depends on the performance of the underlying equities in the portfolio.
– Diversified Portfolio: ELSS funds typically invest in diversified equities from different sectors, thereby reducing concentration risk.
What are hybrid funds?
To simplify the meaning of hybrid funds, it can be said that hybrid funds are a combination of equity and debt investments designed to meet the investment objective of the scheme. Each hybrid fund has a different combination of equity and debt targeted at different types of investors. Investors can also add hybrid mutual funds to their portfolio and enjoy the benefit of at least two asset classes—equity and fixed income—in one fund.
According to SEBI, the classification depends on what is the maximum and minimum level of equity. The fund with the highest protection in the hybrid category is the debt hybrid, in which 75-90% of the money is invested in debt instruments. Different categories of hybrid funds include equity-saving funds, equity hybrid, balanced funds, multi-asset funds and balanced advantage funds.
Features of Hybrid Funds
The key features of hybrid funds are mentioned below:
, It is a mixture of- In its investment strategy, it has a broad portfolio that includes both equity and debt as well as other assets. Through a single fund, you can invest in multiple asset classes.
, It is always balanced- Hybrid funds have a balanced portfolio that allows them to leverage the best of all asset groups. It attempts to provide higher returns with lower risks, as well as help you meet your short-term and long-term financial objectives.
, Investment combinations vary- Different types of hybrid funds have different equity-debt combinations. They are aimed at meeting the financial demands and investment objectives of different types of investors. It also caters to the risk tolerance of a large number of investors, ranging from conservative to moderate and aggressive.
, It is known to perform well in the long term – Hybrid fund investments are suitable for investors who can commit to holding the units for at least three to five years.
– J. P. Shukla
