I am a software engineer and would be investing in the mutual funds for the first time. I am looking for tax exemption and handsome returns, so I zeroed down to ELSS. I may go for an investment of Rs 30,000 in ELSS this year through SIP. Is it better to split it across two-three funds or should I put in one fund only?.
-Mahesh
Your decision of investing in ELSS through SIP is perfect. It is good to see that you are making your very first mutual funds investments with proper planning. We would recommend you to spread your investment across at least two funds.
It will provide you with diversification across fund managers. Even the best of fund managers may make mistakes and it would not be advisable to entrust your entire money to just one fund manager. Diversification will be all the more important in a category like ELSS where the investments are locked in for three years. Hence, if your chosen fund becomes a laggard subsequent to your investment for any reason like a change in the fund manager, then you would have no choice but to see it under-perform for the next three years. Diversification will be of much help in such a case.
This article was originally published on February 08, 2006.
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