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Which mutual funds can aid your short- and long-term goals?


I am 28 years old and want to start investing in mutual funds through systematic investment plans (SIPs). Currently, I have a monthly income is 50,000. My goal is to buy a car in two years and create a corpus for our child which we are planning to have in next two years. My final goal is to accumulate wealth until retirement.

—Name withheld on request


With a monthly income of 50,000, an ideal savings target for every month would be 10,000 (20% of your income). For the utilization of this investment, you have three financial goals — one at a very short duration of two years, and two in durations that are quite long (15+ years). For the short duration goal of buying a car, you can take only minimal risks, if any, with your investments. So, you can at best invest the money in very short-term debt funds such as the money market funds from HDFC Mutual Fund or Kotak Mutual Fund. Money market funds invest in money market instruments having a maturity of up to one year. 

After you have saved enough for the down-payment of your car and fulfilled that goal, you can start investing towards your long-term goals of child’s education, and retirement. Contrary to the money market portfolio, you can take significant risks with in the form of equity fund exposures with these portfolios. A good idea would be to split your monthly SIP into two portfolios – one for each of your financial goals, and manage them separately. In each of these portfolios, you can use index funds such as UTI Nifty Index Fund and aggressive funds such as Parag Parikh Flexi Cap Fund and Axis Midcap Fund. Flexi cap funds are open-ended dynamic equity schemes that invest across large cap, mid cap and small cap stocks. Such funds invest at least 65% of their corpus in equity instruments. A mid cap fund, on the other hand, must invest at least 65% of its corpus in mid cap companies. 

You can create sets of 3-4 funds for each of the two portfolios with significant equity exposure and allow them to grow over the long term.

Srikanth Meenakshi is a co-founder at PrimeInvestor.

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