Zerodha Fund House is the first AMC in India to launch lifecycle funds. If you’re investing towards a long-term goal, this thread explains the idea behind them.
Quoting @nithin 's tweet from today:
Good investing outcomes come from doing a few boring things well.
For most people, investing boils down to a handful of things:
- Decide on the right asset allocation for your financial goal and time horizon.
- Stick to low-cost index funds or ETFs instead of trying to pick stocks.
- Invest regularly, come rain or shine.
- Increase the amount you invest as your income grows.
- Rebalance your portfolio periodically.
- Stay invested.
That’s really it.
The problem is that while this sounds simple, it isn’t easy.
How much equity should you own? How much debt? Should you have some gold? Which funds should you pick? How often should you rebalance? And as your goals get closer, should your asset allocation change?
These are genuine questions, and they’re not always easy to answer.
To make matters worse, there are thousands of mutual funds and ETFs to choose from. Even if you’ve already decided to stick to low-cost index funds, the sheer number of choices is maddening.
This complexity is one reason many people continue to park money in fixed deposits or insurance products, even when they know there may be better alternatives. Investing often feels intimidating before it even begins.
This is exactly the problem that lifecycle funds (or target-date funds, as they’re called in some countries) are designed to solve.
You pick a fund that roughly matches the horizon of your financial goal. The fund takes care of everything else: choosing the asset allocation, rebalancing the portfolio, and gradually reducing equity exposure while increasing debt exposure as you move closer to your goal.
The logic is simple. The farther away you are from your goal, the more risk you can afford to take. The closer you get, the more important it becomes to preserve your capital. If you’re retiring in a few years, for example, having your entire retirement corpus in equities probably doesn’t make much sense because equity markets can be highly volatile over short periods.
Until recently, this category didn’t exist in India. SEBI has now introduced lifecycle funds, and through Zerodha Fund House we’re the first AMC to launch them.
The underlying portfolio is intentionally simple and low-cost. The equity allocation is through the Zerodha Nifty LargeMid 250 Index Fund, giving you exposure to India’s top 250 large- and mid-cap companies. The debt allocation is through government securities, with allocations to gold and silver for diversification and arbitrage for tax efficiency.
If you’re looking for a simple, low-maintenance way to invest towards a long-term goal, this is about as close as you can get to a one-fund solution.
The NFOs for our lifecycle funds are now open. Check out the link below to learn more.
