What is the best Mutual Fund to invest?

There is no single best fund to invest. There are different types of funds that can be chosen for different types of requirements.

The fund that is most appropriate for most Indians is the Equity Large and Mid Cap fund, which invests in shares of Indian companies listed on the National Stock Exchange or the Bombay Stock Exchange. The reason why this type of fund is most appropriate is because most Indians do not invest in equities in a systematic long term manner to build wealth. The absence of this fund in your portfolio will cause large and lasting damage to your financial well being. These funds are best used for investments of 10, 20 even 30 years. An investor can choose to supplement these funds with Small and Mid Cap funds to boost risk and return. For a young person investing for a long time, this is the fund that matters.

For those who wish to place large sums of money for a short period of time, it is better to go with short term debt funds. These funds are easily replaced by bank fixed deposits, but they are usually better than bank FDs. In any case, even if you do not have these funds in your portfolio, it will not cause much harm unless you are placing very very large sums of money idle in a bank account. This is a 'nice to have' fund for most Indians, and a 'must have' fund for cash rich Indians.

Other funds are useful if you have a specific view on the share market. For example, infrastructure funds, pharma funds, technology funds, etc. are useful only if you believe that these sectors will do better than the economy as a whole. Similarly, long term debt funds are useful if you believe interest rates will fall.

From here on complexity in Mutual Funds increases. There are many funds for many different requirements. There is, however, NO single best fund.

Where can I invest for 2-3 years in a Mutual fund?

For a duration of 2 -3 years you can get returns of approximately 8% to 9% through debt/liquid funds as of 2015. These funds are quite safe and deliver returns slightly above FDs. These funds are

taxable. Any interest you earn will be taxed as part of your income.

You can also look to invest in Fixed Maturity Plans, which give higher returns, but these are illiquid. You will not be able to take out your money before maturity.

You can look to invest in Arbitrage Mutual Funds. There give returns similar to Liquid Debt Funds, but the returns in an Equity Mutual Fund are tax free after one year of holding. Even for sales within a year, returns are taxed at approximately 15%.

If you want to run greater risks for higher returns, then you can try Balanced Funds. These could give you-20% to +50% in two years and will be tax free if you hold for more than 1 year.

To make  good choice you need to understand fund objectives, category, house, manager, holdings, yields, expenses, and history among other things. Knowing exactly which funds to pick, and for how long to keep with it requires deep understanding. We are happy to help you with that if you invest through us at SphereGreen.

Want to Invest in the Stock Market?

Investing directly in stocks is one of the fastest ways to lose money. An individual investor is the worst informed, has the slowest IT systems, has the longest chain of brokers to market and has the highest costs. He has zero risk management and holds his losses, often growing them as he seeks to 'average' the price of his holdings. Everybody loves the retail investor, because ultimately, it is he who gives free money to all the other players in the market. No market is truly in a bubble until the retial investor is pumping in money freely and directly.

Fools invest directly in the stock market.

Smart guys invest through Equity Mutual Funds. These funds are tax free after a year of holding, can be used to provide 80C tax benefits, have provided historical returns of over 15% to 17% per year (some have provided more than 23% per year), and are fully liquid - you can put in more money or take out money at any time you want. Most importantly, you get an expert to manage your money.

How Much should I Invest?

The heart of a good investment plan is equity investment, begun early in life.

A lot of people ask me what is the right amount to invest in an SIP. The simplest answer to that is it should be AT LEAST 10% of your take home salary. If you are taking home Rs. 30,000 per month, then you absolutely must have an SIP investment of Rs. 3,000 per month to build long term savings.

The math behind this is not the point, at least initially. It is the habit of investing that is crucial. It helps to build awareness of two things that are absolutely crucial to understand.

First, you are on your own. There is no pension in old age, there is no medical care in India worth the name, and in today's world don't expect your children to take care of you. In matters of investment you must be steely eyed and realistic. Your parents are the worst guides in this matter because their world was very different. They had pensions, they had medical care, they had subsidized housing.

Second, what you get is NOT your salary. It is your salary, pension, house, medical, all rolled into one. You are effectively borrowing from the future, your own future, to finance your life today.

Take a minimum of 10%, put it aside because you will surely need it. If you cannot do that, life is going to get very tough very soon.