Mutual Funds

Your Fund Portfolio

Aarati Krishnan | Updated on April 14, 2019 Published on April 14, 2019

I am a homemaker who is 51 years old. I recently received ₹20 lakh from my mother as a gift. I would like to invest the amount in different mutual funds for a period of five years. I have a moderate risk appetite. Kindly advise me on choosing mutual funds that have a record of performing well.

Anuradha B

As you have not mentioned the goal towards which you would like to invest the money, we assume that you would just like to protect your capital and earn reasonable returns on it. Given that you would like to invest the money for five years, it isn’t advisable to go in for pure equity funds. Stock-market valuations are currently high and if there is a correction, it may take longer than five years for you to make good returns.

Keeping in mind your five-year horizon, if you would like to avoid stock-market risks altogether, we would suggest that you park the ₹20 lakh in corporate bond funds. Corporate bond funds are pure debt funds that invest mainly in AAA rated corporate bonds, which carry low risk of default. We recommend HDFC Corporate Bond Fund, Aditya Birla Sun Life Corporate Bond Fund and ICICI Prudential Corporate Bond Fund for their good-quality portfolios with reasonable expense ratios. Based on the current market yields, such funds may deliver 8-8.5 per cent, though there’s no guarantee of returns.

If you don’t mind taking on a bit of risk for the prospect of higher returns, you can add an aggressive hybrid fund with a 65 per cent equity exposure and a 35 per cent debt exposure to these three. ICICI Pru Equity & Debt is a good choice. If the stock market fares well over your holding period, aggressive hybrid funds can get you to a double-digit return. But on the flip side, a market correction can reduce returns to single digits, too. If you choose to go with the latter, you can divide your money equally between two corporate bond funds and a hybrid fund.

I have taken VRS from a public sector bank and want to invest ₹5 lakh in a mutual fund for a period of five years for my son who has just passed 12th standard. Please guide me on which mutual fund I should invest in so that it may be beneficial for my son.

Rajesh Kutriyar

The kind of mutual fund you should choose would depend on the purpose for which you are looking to invest. If you are investing towards your son’s higher education, you may not have much flexibility on your holding period and will expect your capital exactly at the end of 4-5 years. In this case, it would be best to stick with relatively safe corporate bond funds which invest mainly in high-quality AAA rated corporate bonds. Based on prevailing market interest rates, such funds may deliver 8-8.5 per cent per annum. HDFC Corporate Bond Fund and Aditya Birla Sun Life Corporate Bond Fund are two choices between which you can split the investment equally.

If you are not looking to fund your son’s education with this money but are just looking to build a nest-egg for him, you can afford to be flexible with your investment horizon and stretch it for a year or so, beyond the five years. In this case, you can consider one corporate bond fund and one aggressive hybrid fund. Aggressive hybrid funds have the potential to deliver double-digit returns but can subject you to low returns or even capital losses during bear phases in the market. They invest 65 per cent in equities and 35 per cent in debt. Consider ICICI Pru Equity & Debt or HDFC Hybrid Equity for this purpose.

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