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The best thing about mutual funds is, it allows you to invest even a minimal amount of money. Mainly, the SIP plans will enable you to invest with Rs.500. If one chooses to invest in SIP, several funds that accept such a minimal amount of investment.
One can invest in the fund, which is most suitable for him. The decision would depend upon the financial situation, the time horizon, goals set, risk-taking capacity and many other factors.
With an investment of just Rs.500, you can diversify your portfolio.
Let us understand various categories of mutual funds where one can invest in:
Equity-Linked Savings Scheme is tax saver mutual funds. One can take a tax deduction of up to Rs.1.5 lakh under section 80C of the Income Tax Act. They allocate 65 per cent of their portfolio into equity shares and have a three-year lock-in period. Also, one can take a SIP for ELSS funds. The lock-in period ends after three years of each SIP instalment.
These types of funds invest in large or blue-chip companies that have a proven track record. One can get the exposure of investment in such companies with a significantly less amount.
Mid-cap funds invest in mid-sized companies, and small-cap funds invest in small companies. The market capitalisation of such companies is less than large companies. With a minimal amount, one can invest in small and mid-cap companies, giving significant returns if it grows to form a large company.
The debt funds invest the amount in the money market and different types of bonds. They are less risky as compared to equity-oriented funds. Hence, returns are also comparatively lower than equity funds. The debt funds are of various types, such as liquid funds, short-term funds, ultra-short-term funds, etc.
Liquid funds invest in highly liquid debt instruments. These debt instruments are for a short term with up to 91 days of maturity period.
For example, the Treasury Bill, with a maturity period of 91 days, is a liquid instrument.
Short-term funds have a maturity period of up to three months. Short-term funds invest in papers like Commercial Paper (CPs) or Certificate of Deposit (CDs). In comparison, ultra-short-term funds comprise short term securities with a small portion of long-term securities.
Hence, there are many options available in mutual funds to start an investment with just Rs.500. One can choose any category of investment according to their preferences.