Your queries: Mutual Funds – Turning 30? Go for a 85:15 equity-debt mix in MFs

One could also have 5-10% exposure to gold, from a diversification perspective as gold has a low correlation with other asset classes and is seen as a safe-haven asset in times of global risk-off sentiment.

Your queries: Mutual Funds – Turning 30? Go for a 85:15 equity-debt mix in MFs
The allocation to international equities can be made through globally diversified equity funds or geography focused funds such US, Europe and emerging markets dedicated funds.

I am 29-year-old and earn Rs 30,000 per month. I want to start SIP in mutual funds. What should be my asset allocation?
—Praveen Kumar
An asset allocation-based approach (mix of equity, debt, commodities, real estate, etc.) is advisable 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. The allocation to equities should be a function of your risk profile and investment horizon as related to your goal. Assuming a long horizon of 10-plus years given your age, you could look to invest with a portfolio mix of about 85% into equities (large/mid/small-cap/international – 55/10/5/15) and 15% into fixed-income funds. The international equity allocation offers diversification across geographies and acts as a hedge against rupee depreciation. 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 and medium to long-term funds. One could also have 5-10% exposure to gold, from a diversification perspective as gold has a low correlation with other asset classes and is seen as a safe-haven asset in times of global risk-off sentiment.

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Subject to the investment amount, one can consider hybrid funds such as balanced advantage funds – where the asset allocation across equity & debt is dynamically managed – or aggressive hybrid funds – where the allocation to equity and debt is largely static at 65-75% to equity and remainder to debt. The allocation to international equities can be made through globally diversified equity funds or geography focused funds such US, Europe and emerging markets dedicated funds.

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As your goal approaches (2-3 years before retirement), shift allocation out of equity into fixed-income funds, to reduce risk of future capital loss in the portfolios. Diversification is a key aspect while constructing a portfolio, as it cushions the portfolio against any adverse movements of a single security/asset class. One should be reasonably diversified across asset classes (equity, fixed-income, commodities), sector, style (value/growth) and even fund houses. It is recommended to have an emergency corpus in place worth at least six months of expenses, and a term plan and a health cover in place to safeguard your family against any untoward incident.

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

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