How to allocate money into mf segment means whether invest in small cap fund or index or flexi I’m 24 year & I also planning to invest for family also.
All responses all welcome @ShubhS9
This is very open ended question. For any definite answer, one need to understand background, goals, family constraints, and so on.
The simplest planning for short term (Say less than 5 years) is open RD . Till 5 Lakh rupees, there is basic insurance for bank FD. so its relatively safe.
The simplest planning for (very) long term is invest in index fund using SIP and step up SIP as your salary grows.
The situation becomes slightly complex when you are near to your goal (say 10 years away). Every one has different risk appetite and ability to invest.
in Any case in general when you are away from goal, you should be more in equity ( todays value, irrespective of invested value) and when you are near your goal you should be more in debt /fixed income and gold etc (again todays value, irrespective of invested value)
there have been different discussion threads in forum which have touched this aspect e.g
Whether small cap or large cap, whether Fin sector or IT sector… in long run there is always rotation and (typically) we can not predict who wil be winner in next month, next year, next decade. So IMHO we shouldn’t bother much about it when we are starting investment journy.
Before starting to invest in Mutual Funds you need to answer the following questions:
- What are my goals for the investment?
- How frequently am I going to invest (Weekly, Monthly, Annually, or Lumpsum)?
- How much risk can I take?
- For how long I will be investing?
Just to make things easy, I will be assuming that your investment goal is for retirement, you will be investing monthly, you could take minimum risk, you will be investing for 15-20 years or more.
Since, your vision is long term you need to diversify your portfolio across multiple asset classes. I would recommend investing in following asset classes:
- Equity
- Gold
- Debt
- Real Estate (Recommended to go for US REIT’s since there is no good REIT available in India till now.)
1. Equity
Now, in equity you will have multiple options like index funds, blue-chip funds and so on. You must invest around 50-60% of your equity corpus in low-cost index mutual funds as investing in this fund means investing in INDIA. Since, you are investing for long-term a market crash won’t bother you since, you are investing monthly you are buying new position in the best time and these positions will sky-rocket very fast.
Now, let’s talk about your 40-50% remaining equity corpus. You should invest not more than 5% of your equity corpus in small cap MFs, since there is a chance that these stocks are manipulated and have very low liquidity. I would suggest you to not invest in small-cap MFs and rather go for mid-cap MFs.
Investing in mid-cap MFs is much better as the companies here have the potential to grow rapidly. You should invest around 15-20% of your equity corpus here.
Now, let’s talk about sector-specific MFs. This investment could be kept for a very long time or even switched every year. You would need to identify the potential sectors and would need to invest there. This investment is not suggested to buy and forgot as you need to identify weather the sector has bright future ahead or not and timely exit those positions. If you don’t want to invest here increase you holdings in index-funds and keep mid-cap same.
2. Gold
You have multiple options here SGB, Gold ETFs (I know they are not MFs). Going for SGBs are much better option as they provide 2.5% interest on the invested amount till bond maturity (i.e. 8 years) and liquidating the bond after 8 years will make the gains tax free. Also, gold will be hedge against equity market crash.
3. Debt
You could go with Debt MFs but I will recommend you to go with T-bills and G-secs as these provide inflation-adjusted returns and they are also the safest instrument. Here, you could safely keep your Emergency Fund.
Allocation of Funds
- Equity (~75%)
- Gold (~23-24%)
- Debt (~1-2%)
NOTE: these number will be different for every family and person but this is what my recommendation as per my assumptions.
Must read the following articles:
1 Like