Once you receive your salary, the first question that comes to mind is to invest the surplus amount. The returns on the traditional instruments are reducing gradually in the last few years. Hence, one must start thinking about other investment opportunities in the market.
Mutual funds are one of the best options to invest. You can choose mutual funds that can match your risk appetite and time horizon.
Before starting to invest in mutual funds, create your investment goal. The investment goal will make you understand the time horizon of your investment. You can plan for the short term, say for 1-3 years, or the long term, with a period of more than five years.
Debt funds are more suitable for the short term, whereas equity investments should be generally long term.
One can start a SIP to invest the surplus salary regularly. Divide the surplus amount into various types of mutual funds according to their goals. The SIP can be monthly, weekly, quarterly, etc. One can regularly invest funds without fail through SIP. It will ensure consistent savings.
Equity-Linked Savings Scheme or ELSS are equity-oriented savings schemes that give you tax benefits. One can take the deduction of Rs.1.5 lakh under 80C. They have a lock-in period of three years. Investment in equity funds should be for the long term, basically for a 5-10 years time period.
Aggressive investors can prefer to invest in high-risk funds such as mid-cap, flexi cap and sector funds. Multi cap funds invest in companies whose market capitalisation is less than Rs. 20,000 crore but more than Rs. 5,000 crore. These companies have tremendous scope of growth. They may give significant returns in 3-5 years of time horizon.
Unlike mid-cap funds, flexi cap funds invest in equities of all types of companies. They are also called diversified equity funds. These funds deliver steady returns even during the adverse market situation.
Sector funds invest in particular sectors with the highest potential for growth by taking advantage of the market situation. They invest in companies in the same industry. Investment in any fast-expanding industry can provide significant returns, but these funds have high volatility. Hence, it is essential to have a deep understanding of the industry sector.
One can go for balanced funds if the risk appetite is very moderate. Balanced funds or hybrid funds are invested in a mix of equity and debt at a specific ratio. They are less risky, and the returns may outpace inflation.
Hence, one can build a core and satellite portfolio. Index funds, large-cap funds and ELSS funds are core portfolios, whereas mid-cap, sector funds and flexi cap funds are satellite portfolios. Where the satellite portfolio will offer an increase in overall return, the core portfolio will provide stability.