I am a beginner with mutual funds. I work in an MNC in Chennai. I would like to know the difference between a regular equity mutual fund and a tax-saving fund. Do all mutual funds offer the benefit under Section 80C? Can I withdraw my money at any time from a mutual fund? I would also like to know the difference between an equity and debt fund.
A regular equity fund and a tax-saving fund have one factor in common. They both invest in stocks across sectors, in other words, both are equity diversified funds. They may have a market cap tilt, for instance some funds may invest more in large-cap stocks, while others in mid caps while still others may have a multi-cap tilt.
The difference is that a tax saving fund, called equity linked savings scheme (ELSS), offers the benefit under Section 80C, no other fund does.
If the fund is open ended, then you can sell your units anytime. If it is an ELSS, then your money is blocked for three years. If the fund is closed end, then for the tenure that it so, you cannot buy any units of the fund. Technically, you cannot even sell during this time, but funds do give the option to exit with an exit load.
Just like an equity fund invests in stocks listed on a stock exchange, a debt fund will invest in fixed return instruments or debt instruments that are traded in the debt market.