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How to invest in mutual funds

As equities can be very volatile in the short term, invest in the direct plans of these short term debt funds—ICICI Prudential Short Term Fund and HDFC Short Term Debt Fund—through SIPs to achieve your short-term financial goals. (MINT_PRINT)Premium
As equities can be very volatile in the short term, invest in the direct plans of these short term debt funds—ICICI Prudential Short Term Fund and HDFC Short Term Debt Fund—through SIPs to achieve your short-term financial goals. (MINT_PRINT)

  • You can use online SIP calculators to find out the monthly contributions required to achieve those short-term financial goals, assuming an annualized return of 5% per annum

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NEW DELHI : I am 28, and my take-home monthly salary is about 80,000. I have accumulated 5 lakh in fixed deposits till now. I contribute 1.2 lakh each year to public provident fund (PPF) for my retirement security and for saving taxes under Section 80C of the Income Tax Act. I can save 30,000 per month, and I want to invest in mutual funds. How should I proceed?

—Name withheld on request

 

Given your young age, I would recommend you to invest in equities for achieving long-term financial goals, that is, those maturing after five years. Start by identifying your financial goals maturing within five years and those maturing after five years. As equities can be very volatile in the short term, invest in the direct plans of these short term debt funds—ICICI Prudential Short Term Fund and HDFC Short Term Debt Fund—through SIPs to achieve your short-term financial goals. You can use online SIP calculators to find out the monthly contributions required to achieve those short-term financial goals, assuming an annualized return of 5% per annum.

Your existing investments in fixed deposits can be used as emergency funds for dealing with financial exigencies arising from job loss, illness, disability, etc. Aim to maintain an emergency fund big enough to meet unavoidable expenses and monthly contributions for crucial financial goals for at least six months.

The rest of your monthly surpluses should be invested in equity funds to achieve long-term financial goals. You can distribute the surpluses in direct plans of these large-cap index funds and flexi-cap/ “large- and mid-cap" funds—Tata Index Sensex Fund or HDFC Index Sensex Fund; and Parag Parikh Flexi Cap Fund or Mirae Asset Emerging Bluechip Fund—through SIPs.

If your risk appetite permits, you can invest in Equity Linked Savings Scheme (ELSS) funds instead of Public Provident Fund (PPF) to serve the twin purpose of saving tax under Section 80C and achieve your retirement security. ELSS funds offer higher liquidity as they have a lock-in period of three years, the shortest among all investment instruments qualifying for Section 80C deduction. As ELSS funds invest in equities, and equities as an asset class beats fixed income instruments by a wide margin over the long term, investing in ELSS can help generate a bigger retirement corpus than PPF.

Naveen Kukreja is the chief executive officer and co-founder of Paisabazaar.com. Please mail your queries and views to mintmoney@livemint.com.

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