Diwali Bonus | Mutual Fund: Where should you invest your Diwali bonus, gifts? Mutual fund advisors offer help

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Diwali festivities are still going on and apart from sweets and gifts, there is also an inflow of cash around this time of year. Some people get cash from relatives and some get Diwali bonuses at their workplace. Instead of spending the money on unnecessary things, it makes sense to start investing it. However, many individuals, especially the new investors, are confused about where to invest this money. If you are also confused, here’s some help from mutual fund advisors.

Anup Bansal, Chief Business Officer, Scripbox:

If you are an aggressive investor, and can take risk, it makes sense to start with large cap and mid cap funds. These funds are one of the safest options to invest in, especially, if you are starting your investment journey. In the last three years, CAGR returns of top large cap mutual funds have been around 12% to 16%, while the same on mid cap funds have been around 25% to 30%.

Large- and mid-cap funds are less volatile compared to small cap funds and even stocks. If you are just starting to invest, Canara Robeco Bluechip Equity Fund (large cap) and Emerging Equities Fund (large and mid-cap) are safer choices.

If you can take the risk of a little small cap allocation too, then go for multi cap funds. A multi cap fund is an open-ended fund that invests in a combination of large/mid/small at the discretion of fund managers. It trades off the risk and rewards of different funds. The CAGR return of the last three years for top-ranked multi-cap funds has been around 14% to 20%.

If you want to start with low risk, try hybrid funds. These funds consist of equity and debt instruments, providing the benefit of better returns and risk mitigation. The CAGR return of the last three years for this fund category has been around 9% to 15%.

Subir Jha, Founder, Buck Speak, a wealth management firm:

While Diwali brings along a whole host of spending, if you are one of those lucky ones to get a bonus or an incentive, it wouldn’t hurt to invest it wisely. As always, with the insane number of choices available, it isn’t easy to pick one. If you have chosen Diwali to be the start of your investing journey, you can start with a hybrid equity or a diversified equity fund. The former will have relatively lower volatility than a full-fledged equity fund and the latter will provide you exposure to a wide spectrum of equity universe

What would serve you well during this journey:

i) Have a long-term horizon (min 5-6 years, longer the better): So, don’t look at your portfolio every now and then

ii) Love volatility: I know it is easier said than done, but there is no other way. If you can’t love it, the least you can do is not to fear it

iii) Don’t shun a fund after 2-3 quarters of ‘underperformance’. Funds invest in real businesses, which can have their share of underperformance. Just like good businesses emerge stronger in the long run, similar is the case with funds

iv) Don’t compare notes with your friends. Each investor is different and what has worked for one person wouldn’t necessarily work for the other.

Nidhi Manchanda, Certified Financial Planner, Head of Training, Research & Development at Fintoo:

If you are a first-time investor and have just received a Diwali Bonus, it is suggested to invest in a tax-saving mutual fund or ELSS (Equity Linked Saving Scheme). It will not only help you claim tax deductions of up to Rs 1.5 lakh but also assist you in your wealth creation journey. However, if your tax saving is already taken care of, you can invest in large cap equity mutual funds, balanced funds or multi cap funds, depending on your risk appetite. It is important for investors to stay invested in such equity mutual funds for at least five years or more.

The most important advice that I would give to first-time investors is that they should have patience, not let the market volatility affect their confidence and ensure proper asset allocation and diversification.

Chokkalingam Palaniappan, Founder, Prakala Wealth:

Advice should be in line with your risk profile and a lot of other things. However, a simple way to think of investing is this – If you are young and agile (20-40 years old), invest in multi cap funds and forget for at least 10 years. If you are middle-aged (41-52 years old), invest in large & mid cap funds and leave it for at least five years. If you are retiring soon (53-58 years old), invest in balanced advantage funds and leave it for at least three years.

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