My daughter has just started earning and I want to inculcate the habit of savings in her. Kindly advise which mutual funds - aggressive hybrids or pure equity - should she start investing in?
Sushil, that's very thoughtful of you but I would request you to encourage her to ask this question. With regard to the investment option, your daughter's salary will decide where she should invest. If she falls under the tax bracket in the first year, then she should start investing in tax-saving mutual funds (ELSS) from the very beginning. But if there is no requirement for her to save any taxes, then I would advise her to invest in aggressive hybrid funds. With a 65:35 equity to debt allocation, the in-built debt portion in aggressive hybrid funds acts as a cushion.
Invest in these funds for about three years. And after that, consider moving to pure-equity funds. This will help your daughter get accustomed to the market gymnastics and experience volatility before taking an all-equity exposure.
Make sure that your daughter doesn't invest in one go but spread her investments over a period of time. Further, most of us think about investments in constant terms even when inflation is on the rise. But that shouldn't be the case. Thus, ask your daughter to keep escalating her SIP contribution in line with her increasing income. This will be an investment training for her.
Also, I would like you to try and make sure that your daughter opens her investment account all by herself and every month goes through her account statement, too.