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Mutual funds have gained popularity post demonetisation following slashing of savings account and Fixed Deposit (FD) rates. Banks were flush with cash as more and more citizens deposited money in saving and current bank accounts. So banks cut savings bank and FD rates.

With even small saving schemes offering less interest, people rushed to invest in mutual funds which promised higher returns. Government-backed campaign 'Mutual Funds Sahi Hai' also promoted investment in mutual funds.

In this article, we discuss various mutual funds in which you can invest in if you have Rs 1 lakh to spare.

Mutual Funds For Risk-averse Investor

Are you the kind who is willing to settle for lesser returns rather than risk losing money? You are then risk-averse. You could invest in Debt Funds. Debt funds invest in fixed income instruments which has less risk and also give decent returns.

Liquid Funds: You can invest in Liquid Funds, which are debt funds that invest your money in short-term money market instruments like Treasury bills, Government securities, CDs and commercial paper with a maturity of 91 days. Liquid funds give higher returns than SB accounts, around 6%, and can be easily withdrawn in an emergency.

Monthly Income Plan: Consider an investment in MIP (Monthly Income Plans), which are also a type of debt fund. These funds invest 80-90% in highly safe debt (bonds) and the remaining in equity. The debt portion carries lesser risk and the equity portion gives decent returns. MIPs have given around 8-10%% compounded annual returns in the last 10 years.

If you have investment tenure of lesser than 5 years, consider investing Rs 1 Lakh in debt funds.

Debt funds are more tax efficient than bank FDs and give higher returns. If you stay invested in debt funds for 3 years or more, your long-term capital gains enjoy indexation benefits. Gains are taxed at 20%, but you get the benefit of inflating purchase price of debt funds, using cost inflation index to save tax.

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An Indian money changer shows new Indian rupee currency notes to a customer while sitting on the side of a road in Kolkata on August 23, 2013DIBYANGSHU SARKAR/AFP/Getty Images

Remember: Debt funds have given 8-9% returns a year in the past, but returns are not guaranteed.

Mutual Funds For Risk-curious Investor

A risk-curious investor is willing to accept some risk while investing, but wants slightly higher returns. If you are risk-curious, you could consider an investment in balanced funds also called Hybrid Funds.

Equity hybrid funds: Consider an investment in equity hybrid funds that invest at least 65% of your money in equity (stocks) and the remaining in debt (bonds). The equity portion makes sure you get higher returns than most financial instruments. The debt portion cushions your investment in case the stock market crashes.

Something great about equity hybrid funds is if you stay invested for a year or more, long term capital gains are absolutely tax free.

Risk-curious investors who have Rs 1 Lakh to spare, must invest in equity hybrid funds through SIPs. Stay invested in equity hybrid funds for at least 3-5 years. Some Equity hybrid funds have given 14-16% annualized returns over 3 years during the past.

Mutual Funds For Risk-taking Investor

If you are a risk-taking investor, you accept high risk for high returns. Diversified Equity Funds are just right for you.

Diversified Equity Funds: An investment in diversified equity funds means investing your money across different sectors like financial services, pharma, automobiles and so on. Your investment of Rs 1 Lakh is diversified (spread) across different sectors. If you stay invested for more than a year, your gains called long-term capital gains are tax-free.

Stay invested in diversified equity funds for at least 3-5 years or longer. Well diversified equity funds can give around 15-20% annualised returns. Diversified equity funds can give negative returns if stock markets crash, but staying invested for the long-term generally gives good returns.

Sector funds: Mutual funds which invest in a particular sector or industry like banking, pharma, FMCG or technology are called sector funds. These funds take exposure to a single sector and are very risky.

A risk-taking investor must try to limit exposure to around 15% of his Rs 1 Lakh in sector funds. Tenure of 3-5 years is advisable. If the sector does well, expect 20-25% annualized returns over 3-5 years.

(The author is the CEO of BankBazaar. Views expressed in the article are personal).