YOUR QUERIES: MUTUAL FUNDS: Go for mix of equity and debt for investing towards long-term goals

By: |
June 16, 2021 2:00 AM

While fixed income lends stability to the portfolio, equities play a crucial role in wealth generation over the long run with a potential to deliver superior inflation-adjusted returns compared to fixed income.

You can also allocate 5-10% of your portfolio to gold. Gold offers a hedge against inflation and a safe-haven asset in times of market drawdowns.You can also allocate 5-10% of your portfolio to gold. Gold offers a hedge against inflation and a safe-haven asset in times of market drawdowns.

I want to invest Rs 1 lakh for tax saving purpose. Is investing in lumpsum advisable at this point of time or should I wait for the market to come down or should I start a SIP instead? I would like to be invested for more than 5 years in an ELSS fund. Also, how I can diversify my portfolio?
—Ankita Yadav
Investors should ideally follow an asset allocation-based approach (mix of equity and debt) for investing towards one’s goal. While fixed income lends stability to the portfolio, equities play a crucial role in wealth generation over the long run with a potential to deliver superior inflation-adjusted returns compared to fixed income. Valuations play a crucial role while entering any asset class. Lower valuations reduce the risk of high future capital loss and improve upside potential, and vice-versa. Given the cyclical nature of equity markets and high volatility, invest via the SIP route.

ELSS funds are equity-oriented funds offering tax-savings as the amount invested is deductible under section 80C. However, these involve a lock-in period of three years. For other than tax-saving purposes, look at other equity categories for your equity allocation.

Assuming an aggressive risk profile given a time horizon of 10+ years, you may invest with a portfolio mix of about 80% into equities (Large/Mid/Small-cap/International – 50/10/5/15) and 20% into fixed income funds. On the domestic equity side, one can consider flexi-cap or large and mid cap funds, which can provide allocation across large, mid and small caps. International equity allocation offers diversification across geographies and also acts as a hedge against rupee depreciation.

Here one can look at global equity funds that invest across various different markets. For investment in fixed income, you can consider fixed income funds with a high (safer) credit quality portfolio such as banking & PSU debt funds, corporate bond funds, short duration funds and medium to long term funds. Alternatively, based on the investment ticket one can consider hybrid funds which invest in a mix of equity, fixed income & other assets; categories include Aggressive hybrid, Balanced Advantage, etc. You can also allocate 5-10% of your portfolio to gold. Gold offers a hedge against inflation and a safe-haven asset in times of market drawdowns.

The writer is director, Investment Advisory, Morningstar Investment Adviser (India). Send your queries to fepersonalfinance@expressindia.com

Get live Stock Prices from BSE, NSE, US Market and latest NAV, portfolio of Mutual Funds, Check out latest IPO News, Best Performing IPOs, calculate your tax by Income Tax Calculator, know market’s Top Gainers, Top Losers & Best Equity Funds. Like us on Facebook and follow us on Twitter.

Financial Express is now on Telegram. Click here to join our channel and stay updated with the latest Biz news and updates.

Next Stories
1SEBI’s decision on common platform for Mutual Funds to help investors in service-related transactions: Experts
2Your Queries: Mutual Fund
3Which debt fund category suits you amid rising inflation?