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Investing for childrens education and marriage

I wanted to invest a lump sum of 1 lakh Rupees into Mutual fund and this investment is for my daughters future (Marraige/Education). My plans are : I want to invest the lump sum amount in any short term debt fund (1-year) and do STP into equity funds over a period of time(9-12 months). To be more precise investing one time in debt funds and doing STP into equity funds every month, therefore reducing risk of investing lump sum in Mutual Funds. Consider I have 50k which are my savings until now, the risk I can take is 65%. Now I want to test the performance of Mutual Fund for 2 years in succession and if I get profited then I would like to continue for next 15 years or so. So please suggest me according to my plan ,a best short term debt fund and best/consistent performing equity fund?

Oct 27, 2015 by Basanth S, Bangalore  |   Mutual Fund

It is a good idea to invest lump sum in an ultra short term debt fund or liquid fund and do an STP to an equity oriented fund, because the equity market is expected to be volatile over the coming months. Therefore you can take advantage of the volatility and buy units at a lower cost to get enhanced returns over a 15 year time horizon to meet or even exceed your investment objectives.

You have said you can take 65% risk. While it is clear to us, what you mean by 65% risk, we are assuming that you want to allocate 65% of the investment to a risky asset class like equity and 35% in a low risk asset class like fixed income. Balanced Funds are equity oriented mutual funds, which have 65% - 75% of their portfolio invested in equities and the balanced in fixed income securities. 65% minimum allocation to equities ensures equity taxation whereby your capital gains will be entirely tax free, while the fixed income allocation reduces the risk of your portfolio. As such Balanced Funds are less volatile or risky than diversified equity funds. Tata Balanced Fund, L&T India Prudence, SBI Magnum Balanced Fund, Franklin India Balanced Fund, Birla Sun Life 95, ICICI Prudential Balanced Fund, Canara Robeco Balanced Fund and DSP Black Rock Balanced Fund, among others are top performing Balanced Funds. Since you will be doing a monthly STP you should be mindful of exit loads, when selecting the debt fund. Liquid funds or ultra short term debt funds are best suited for STPs. Liquid funds and most ultra short term debt funds have no exit loads. You should first select the Balanced Fund, where you want to invest and then select a liquid or ultra short term debt fund from the same fund house.

While you want to see if your investment is profitable after two years, it is always recommended to stay invested for a minimum period of three years in equity oriented funds to get a better sense of annualized return from your investment. Also you should monitor the performance of your investment from time and time, and take appropriate actions if necessary.

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