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Construction of a portfolio is majorly dependent on the goals that an individual intends to achieve and the risks one is capable of bearing to achieve that goal. Often, risks and returns maybe misconceived as the key determinants in selecting a financial instrument. However, it is the right combination of asset classes that dictates the overall performance of a portfolio.

Unfortunately, only 10% of time is spent on asset allocation – allocating the investment to the right asset class as per the goal and risk appetite – which actually has 90% impact on the portfolio returns and 60-70% of the time is spent on selection of financial instrument which has less than 5% impact on the portfolio returns. Hence, maximum emphasis should be given to asset allocation which mitigates risks through diversification between debt and equity.

For an investor, making a choice between fixed deposits (FDs) and debt mutual funds (MFs) is difficult. One should appreciate several benefits that mutual funds offer over FDs. Debt MFs are capable of meeting diverse investment objectives because of the numerous options they offer such as, FMP, liquid, ultra short-term, income funds, etc. FDs on the other hand are not as much versatile.

Liquid and ultra short-term funds, which keep you invested for as less as a week or 10 days, are a good option by virtue of its high liquidity. On the other hand, if one has invested in an FD, the exit mechanism would attract a corresponding penalty.

Diversification plays a pivotal role in the performance of one's folio and FMPs serve this purpose aptly. An FMP would invest in 15-25 instruments vis-à-vis an FD that has an exposure towards a single asset. In a falling interest rate scenario income funds can generate capital gains over and above the accrual. However, in FDs the returns are not affected by change in interest rates.

Mutual Funds provide greater tax efficiency due to the benefit of indexation, which in a high inflationary economy turns out to be profitable. Like banks are governed by the Reserve Bank of India (RBI), mutual funds too are well regulated by Sebi.

We have often come across instances where investors have expressed their curiosity towards understanding other options such as likes of Chit Funds, etc. In our opinion and advice, any unstructured lending that is very risky, does not pass through the first filters of transparency and regulation. One should give a serious thought and thoroughly assess before opting for an investment option where higher returns and higher risks are not measurable.

Happy Investing!!

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Invest in Tax Saving Mutual Funds ( ELSS Mutual Funds ) to upto Rs 1 lakh and Save tax under Section 80C.

Invest Tax Saving Mutual Funds Online

Tax Saving Mutual Funds Online

These links can be used to Purchase Mutual Funds Online that are regular also (Investment, non-tax saving)

Download Tax Saving Mutual Fund Application Forms from all AMCs

Download Tax Saving Mutual Fund Applications

These Application Forms can be used for buying regular mutual funds also

Some of the best Tax Saving Mutual Funds available ( ELSS Mutual Funds )

1. ICICI Prudential Tax Plan Invest Online
2. HDFC TaxSaver Invest Online
3. DSP BlackRock Tax Saver Fund Invest Online
4. Reliance Tax Saver (ELSS) Fund Invest Online
5. Birla Sun Life Tax Relief '96 Invest Online
6. IDFC Tax Advantage (ELSS) Fund Invest Online
7. SBI Magnum Tax Gain Scheme 1993 Invest Online
8. Sundaram Tax Saver Invest Online
9. Edelweiss ELSS Invest Online