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Photo: Mint

If your goal is closer, don’t put the corpus at risk for slightly higher returns

Your returns may be affected if markets turn volatile based on how corporate earnings and economic growth pans out, besides foreign institutional activity and markets

I have enough investments for my son’s education goal that is four years away. But most of it is in equities. Should I start switching to debt already or should I wait for another two years or so? The markets are going up, so I am not sure if switching to debt will be a good idea as of now.

—Stuti Garg

If you are comfortably placed in terms of the amount you need for your son’s education, set aside the thought of missing further upside. When you have accumulated the amount you need, the best course is to shift out when the going is good, move to safe assets, and protect the corpus you have created.

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Your returns may be affected if markets turn volatile based on how corporate earnings and economic growth pans out, besides foreign institutional activity and markets. Markets have rebounded very rapidly and very sharply. How long this may continue, when corrections can set in and the depth of this correction will all be known only in hindsight. It is not possible to predict this. You would be needlessly taking on high risk for an important goal, only for the sake of a little higher return that may evaporate just as quickly.

To the extent of your goal amount, shift out of equity. You can do this gradually through systematic transfer plans (STPs) or through phased withdrawals over the next six-nine months—this will allow you to exit and still partially benefit if the market rally continues. Hold this redeemed amount in fixed deposits or low-risk debt funds or a combination of both.

If you have any remaining amount in your portfolio after pulling out what you need for your goal, continue to remain invested in equity. This will let you participate in equity, while avoiding any risk to your son’s education corpus.

My son is four years old and has 1.2 lakh by way of family gifts. This amount will be his to spend when he grows up. Where should I invest it? I was thinking of investing it equally in two aggressive hybrid funds or one hybrid fund and one flexicap fund. Which combination is better? I can take some amount of risk.

—Deepak

It’s a good idea to invest the amount in mutual funds for the long term until your son needs it. You can simply go with one debt fund and one index equity fund. There isn’t much differentiation in terms of strategy in hybrid funds, and a hybrid and equity fund combination gives very small debt exposure. It would also be easier to maintain a simple equity index plus debt portfolio, if you do not want the trouble of having to track its performance, in addition to that of your own investments.

Invest 35,000 in Aditya Birla Sun Life Corporate Bond Fund, a high-quality option, and the remaining in Motilal Oswal Nifty 500 index fund.

Srikanth Meenakshi is co-founder, PrimeInvestor.in. Queries and views at mintmoney@livemint.com

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