Important fund categories and points to consider before creating an investment plan

It is imperative to convert your savings lying around to sound investments for building a stable financial portfolio. This will help to take care of your emergency expenses and more in the future. Creating an investment portfolio with mutual fund involves diversifying your investments across different types of funds to manage risk and achieve your financial goals. Here is a general guide on how you might structure a financial portfolio using mutual fund investment –

Equity Mutual Funds:Allocate a portion of your portfolio to equity mutual funds for potential long-term capital appreciation. Consider diversifying across large-cap, mid-cap, and small-cap mutual fundschemes to spread the potential risk. For high-risk takers there are sectoral and thematic funds which comes with high risk but may also offer higher returns.

Debt Mutual Funds:Include debt mutual funds for stability and regular income. These funds invest in fixed-income securities like government and corporate bonds, etc. Choose funds based on your risk appetite and time horizon. Debt funds offer a wide range of investment to choose from along with different time period. There are debt funds where you can invest for few days to debt mutual funds where you can invest for many years.

Hybrid Mutual Funds:Hybrid or balanced funds invest in a mix of equities and debt instruments. They provide a balanced approach to risk and return as they invest in both the asset classes. Some hybrid funds even invest in gold and REITs. Choose a hybrid fund that aligns with your risk tolerance and investment goals.

Tax-Saving ELSS Funds:If eligible, allocate a portion of your portfolio to ELSS for tax-saving purposes. ELSS mutual funds have a lock-in period of 3 years.

ELSS funds primarily invest in equities, offering the potential for higher returns compared to traditional fixed-income tax-saving instruments. The equity exposure allows investors to participate in the growth potential of the stock market.

Since ELSS tax saving mutual funds have a significant allocation to equities, they have the potential for capital appreciation over the long term. This helps in wealth creation and achieving long-term financial goals.

As ELSS fundsare diversified mutual funds, it invests across different sectors and companies. Thus, including ELSS in your portfolio adds an additional layer of diversification.

International or Global Funds:Consider allocating a small portion of your mutual fundportfolio to international or global funds for geographical diversification. These funds invest in assets outside our home country.

Systematic Investment Plan (SIP):Start a Systematic Investment Plan (SIP) for regular investing. SIPs allow you to invest fixed amounts at regular intervals, reducing the impact of market volatility as it buys units at different NAV.

Emergency Fund and Liquid Funds:Maintain an emergency fundin liquid funds. This fund provides quick access to cash in case of unexpected expenses. It is suggested to keep 6 times of your monthly expenses in liquid funds.

Conclusion

It is important to structure your mutual fund investment across different assets basis your investment objective and risk appetite. Please note that ELSScan be part of your mutual fund portfolio provided you need to save taxes. Investors should carefully plan their investment goals and time horizon before including ELSS funds in their portfolio. You may consider talking to a financial advisor or mutual fund distributor for personalized advice based on your specific financial situation.