Best Mutual fund Investment options for salaried individuals in 2021

Salaried individuals await their monthly salary to cover essential expenses, provide for their families, make provision for one-off spending, and invest the surplus amount if any. Most salaried folks keep looking for investment opportunities for extra income. However, the returns that can be generated from traditional investment instruments are gradually reducing, especially in the case of fixed-income investments. This has led people to explore other investment opportunities in the market that can fetch better returns.

Investment options for salaried individuals primarily depend on four key factors, namely

• Risk appetite,
• Investment time horizon
• Liquidity requirements and
• Applicable tax
  
  An investor can also create a portfolio of multiple investments to cater to different financial goals across various time horizons.

Mutual funds are one such investment avenue that can help salaried individuals to create wealth over time, earn regular income, save tax and also benefit from professionally managed fund investments. Here, we will discuss some of the best mutual fund investment options for salaried individuals to explore in 2021.

Investing as per risk appetite

Mutual funds allow investors to choose from various options depending on their risk appetite.

For example, an investor who has a high risk appetite can go for high risk and high return fund options, especially for meeting long term financial goals. They can also go for low risk fixed income fund investments to ensure that there is capital protection and certainty of income generation to meet short term financial goals.

Aggressive investors or investors who have a high risk appetite can invest in high-risk funds including mid-cap, flexi cap and sector funds. Here are some pointers to note:

1. Multi cap funds invest in stocks of companies with market capitalisation below Rs. 20,000 crore but above Rs. 5,000 crore. These companies generally have a significant scope of growth and can fetch high returns in a 3-5 years time frame.
2. Flexi cap funds invest primarily in equities of all companies. These are also known as diversified equity funds. These funds aim to provide steady returns even in case of market downturns.
3. Sector funds invest mainly in businesses that belong to a particular industry or sector within the economy. Through investment in sector funds, aggressive investors can maximize exposure to a select sector that is expected to outperform. These investments can also be used for positioning portfolios as a defense mechanism during market fluctuations.

Mutual funds for different investment time horizons

Mutual funds allow salaried individuals to pick an investment that can match their investment time horizon. Before starting to invest in mutual funds, it is important for investors to create an investment goal. The investment goal helps in gauge the time horizon of investment. Investors can plan for a short term like 1-3 years, or a long term beyond five years. Debt funds are ideal for meeting short-term goals, whereas equity mutual funds are generally preferred for long-term goals.

To ensure that one can achieve personal goals in different time horizons, it makes sense to begin investing regularly through SIP with the surplus salary available. The surplus salary can be divided across various mutual fund investments according to personal goals. Investors can choose monthly, weekly, quarterly, etc SIP formats. SIP allows investors to make consistent savings and park funds such that they can grow in value over time.

Tax saving mutual fund options

Equity-Linked Savings Scheme or ELSS are mutual fund schemes that are mainly equity-oriented. These can be considered for tax benefits since investors can get a deduction of Rs.1.5 lakhs under 80C of the income tax act. ELSS have a lock-in period of three years. Like any other equity funds, investment in ELSS should be considered from a long-term perspective, generally for a 5-10 years time frame.

Opportunistic investment

Sector funds invest in specific industry sectors that reflect the high potential for growth. These funds aim to take the advantage of ongoing market situations by investing in companies of the same industry. While investment in a fast-expanding industry can offer high returns, these funds often experience high volatility. Therefore, it is important for investors to have a good understanding of the industry sector before investing in sector funds.

For those who have a moderate risk appetite, it makes sense to go for balanced funds, also known as hybrid funds. These invest in a combination of equity and debt instruments using a pre-decided ratio. These are mostly less risky and offer returns that could outpace inflation. 

Salaried investors can also work towards building a core and satellite portfolio. Within the core portfolio, there could be index funds, large-cap funds and ELSS funds. For a satellite portfolio, one can invest in mid-cap, sector funds and flexi cap funds. The idea is to gain stability from the core portfolio while satellite portfolio can help in increasing overall returns. 

Conclusion

Salaried individuals who are looking for additional returns from their investment should consider investing in mutual funds as against parking most of the investment money in fixed income options. Mutual funds can fetch positive long-term returns if these are carefully chosen as per individual financial goals.

FAQs

1. Which is the best mutual fund for monthly income?
   Investors can consider investing in hybrid mutual funds for monthly income flow. These funds invest in a mix of debt and equity instruments and are ideal for investors who have a moderate risk appetite.

2. How much percentage of salary should be invested in mutual funds?
   To maintain an ideal balance between income, savings, and investments, investors can invest at least 20% of their earnings in mutual funds. This percentage can be increased over time as investors gain comfort and have additional income to invest.

3. What is the minimum period for investing in mutual funds?
   Mutual funds come with different investment horizons ranging from overnight investments to a few months to long-term investment options. Depending on personal financial goals, investors can select a mutual fund of a specific investment period.

4. How to invest in mutual funds?
   Investors can download the Fisdom app to invest in mutual funds through a seamless process. The app allows investors to explore various fund options and go through the performance statistics before investing in a fund as per personal investment time horizon.

5. How do mutual fund investors make money?
   Mutual fund investors can earn a regular income that primarily comes from dividend distribution. They can also earn from capital appreciation, especially through long-term equity fund investments.