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I am currently a graduate student in India, who is a little concerned about his financial stability after the graduation, so decided to start investing some of his scholarship/stipend in Mutual Funds, this new year.

First, when I googled for modes of investment, the first few results were like Stock Market, Mutual Funds, Bank FDs, Real Estate, Gold/Silver. As far as my understanding is, investment in Stock Market requires a lot of effort (to continually watch the prices, etc) and also involves high risk.

I next turned to Mutual Funds. Most of the articles that I read, convinced me that Mutual Funds are low effort, stable option to invest money in and that today there are plenty of schemes where I could invest in some Equity/Debt/Hybrid Funds. I decided to go with this option.

Now, while I was going through schemes, there were far more options than I could understand, with my little knowledge of Mutual Funds. I told myself that I can start investing a little amount in some scheme and see how it goes, to learn from it or otherwise I will always be stuck in this learning curve.

So, I ended up investing a little amount in some Tax Saver Plan which consisted of 4 ELSS schemes investing 25% of my amount in each of them. Before, I made the final payment they asked me if I want one-time investment or a SIP (they said that SIP is recommended for this plan). Being a newbie, I chose SIP, because my understanding of SIP was that if I am investing, say $X in this plan, then the Fund Managers themselves will divide this $X into some parts like $X/12 and keep investing $X/12 in each month. So, I finalized this investment.

Meanwhile, I am reading articles/watching videos about ELSS funds, SIPs and everything. Now that I understand them better, I realized that I have made a lot of mistakes and hence can someone please help with these few questions:

  1. I am not an income tax payer but this plan is "Tax Savings Pack" consisting of ELSS schemes. So am I even eligible to invest in these schemes?

  2. Now that I have a better understanding of SIPs, I realized that I have to pay $X each month. And besides, ELSS schemes have a lock-in period of 3 years. So I am really confused now if I should continue with the SIP or just stop it and let that current money sit-in for 3 years?

  3. As per my understanding, wouldn't it be better if I instead invest in some other plan because this plan is particularly geared towards saving income tax?

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    "Mutual Funds are ... stable option". That's a misunderstanding of what a MFs is (which is just a "bucket" of other investments). Those investments can be stable and boring, or they can be risky and volatile, but... they're still in a "bucket".
    – RonJohn
    Jan 14, 2020 at 23:13
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    Do you have an Emergency Fund (a stable pile of savings put aside in case something unexpected happens)? Now is the perfect time to set one up.
    – RonJohn
    Jan 14, 2020 at 23:15
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    @RonJohn I thought Debt Mutual Funds are the stable and less-risky ones?
    – kishlaya
    Jan 15, 2020 at 4:41
  • @RonJohn When you say Emergency Fund, do you mean to just put a separate chunk aside in my bank account OR to invest that chunk somewhere? If it's investment, then is there a recommended way to setup an Emergency Fund?
    – kishlaya
    Jan 15, 2020 at 4:46

1 Answer 1

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  1. You need not be a taxpayer to invest in ELSS. Anyone can invest. A taxpayer gets tax deduction benefits.

  2. If you have invested more than what you plan, best is to stop the SIP and further investments.

  3. It's opinion based. You have to decide. Generally close ended funds perform better when stock markets are volatile as there is no redemption pressure on fund manager and he can better manage it.

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  • Regarding the 2nd answer, right now I think I would like to continue my SIP because as @RonJohn also suggested to setup an Emergency Fund. But what bothers me is that they have a lock-in period of 3 years. What if I need that money, say after a year or so?
    – kishlaya
    Jan 15, 2020 at 4:44

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