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Home / Money / Personal Finance /  Hold investments in equity for five years

I have three systematic investment plans (SIPs) for three purposes. First, Parag Parikh Long Term Equity Fund ( 4,000), is meant for accumulating a corpus of 1.6 lakh in three years; Axis Bluechip Fund ( 8,000) is meant to accumulate 3.6 lakh in three years; and Axis Midcap Fund ( 3,000) is for a goal of having 2.5 lakh in five years. Please review my portfolio.

—Nabadeep

When investing in equity funds, you need to have a minimum holding period of at least five years. A market crash can either pull you into losses even on a three-year period, or leave you with low returns even in three-five year periods. Though the fund you hold may be a top-quality one, it will still fall if markets drop. The best a fund can do is to keep such falls to less than the market’s. In the past 15 years, the Nifty’s returns have been below 5% a fifth of the time. Therefore, in short term periods, debt or hybrid funds such as balanced advantage or equity savings are better suited than pure equity funds.

The funds you hold are quality, consistent performers and you can continue to remain invested in them. It is hard to assume equity returns in short-term periods. However, for the three-year goal, your funds will need to deliver 9-15% annual returns to meet your target. For the five-year goal, you will need a 12.5% annual return. If your funds meet this requirement, you should be comfortable. Else, raise investment in debt funds.

Which types of mutual funds should a person in his or her 50s choose for retirement? Please guide.

—Charu Upadhyay

There is not a one-size-fits-all answer and will vary widely for each investor. The mutual funds you can consider depend on many factors: one, the size of your retirement corpus; two, how far away you are from your target corpus; three, how you are placed with regard to pension or any other source of monthly cash flows; and four, whether you have investments such as National Pension System (NPS) already. This will help you decide when you can start shifting out of equity, if and how much equity you can hold in your portfolio, and what debt funds to go for.

Generally, in the equity portion, one can avoid very high-risk funds such as small-cap, mid-cap and thematic. Moderate-risk equity funds, which invest primarily in large-cap stocks, will be fine. In debt funds, categories such as low duration, ultra short or money market funds, and liquid funds will be good fits if you need systematic withdrawal plan (SWP) income. Based on monthly requirement and size of corpus, short duration funds, banking and PSU debt funds, and corporate bond funds will fit. If withdrawal will not take place for at least six-seven years, then a portion can also be held in gilt funds.

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

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