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Nitin's 2-year-old daughter will be going to school next year for which he needs to save 3 lakh. He has already decided to do Mutual Fund SIP for creating the fund, but he is still contemplating which category to invest in.

The goal here is time-bound and cannot be delayed at any cost, said Paritosh Sharma, Co-founder at Psquare corporate advisors llp, adding, hence, capital preservation is the main requisite here. So, it is advisable to invest in the debt category. 

Though the returns for debt funds are comparatively lower than the equity-linked funds, the capital remains more or less intact. 

On the other hand, picking debt funds over fixed deposit, you get the taxation benefit. On holding a debt mutual fund for 3 years or more, the gains are considered as long term capital gains, for which the returns are taxed at 20%. Over that the investor gets the indexation.

And even under the debt category, it is prudent to invest in Low Duration funds, Short Term Fund, Corporate Bond Funds, and Banking and PSU funds. These funds invest in high quality paper so the interest rate risk and credit risks are minimal, he added. 

Under the current market situations, these funds provide 5 to 6% returns.

The Funds under these categories give slightly higher returns than overnight or liquid funds but without compromising too much on the safety of the investments.

So, to create 3 lakh in a year at 5% to 6% returns, Nitin would need to invest 24,500 every month for a year.

If the rate of returns is 5%, the total corpus would be 3,02,085 on an investment of total 2,94,000. Meanwhile, at 6% return, for an investment amount of 2,94,000, the corpus would grow to become 3,03,732.




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