All about Long Term Funds

There are 5 types of equity funds which can be chosen for long term wealth creation. However, one should evaluate the basic risk involved in each of these fund categories.

  1. ELSS
  2. Sector Funds
  3. Equity diversified
  4. Global Funds
  5. Hybrid

Equity funds will certainly have volatility component within. However, a smart investor understands that, the Taj Mahal cannot be built in a day, that means for better wealth creation from an equity fund one should keep patience and give enough time to the fund. Generally it is advisable to stay for a minimum of 3 years in any equity fund for better result.

You can also reduce risk in equity by choosing the hybrid route – generally called as balanced funds. These are great funds for investors starting out as they get an automatic allocation to debt and equity by investing in one fund. Or, if an investor already has an equity fund and wants a meagre exposure to debt in his portfolio, he could opt for a balanced fund. The aim of such funds is not to shoot out the lights when the equity market is on a roll, but neither should it crumble like a pack of cards when the market falls.

If the investment period in equity mutual funds scheme is more than one year the capital gain is exempted from tax liabilities. Government of India also provides tax rebate for equity linked saving schemes (ELSS) u/s 80C of Income Tax Act 1961. You can invest into ELSS and deduct upto Rs. 1,50,000/- from your taxable income to effectively reduce your tax liability.

Check the power of Long term compounding
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