A 30-year-old reader asks, “What MFs should I choose if I can invest Rs 1 Lakh a month?” Here are some model mutual fund portfolios for long-term goals (> 10 years away) independent of the amount to be invested. They are arranged in descending order of preference. We shall also mention relevant fixed-income options.
Asset allocation: 50-60% equity and the rest in fixed-income. This asset allocation must be reduced in a step-wise manner well before the goal deadline. Otherwise, it is tantamount to relying on luck, and that is not smart. We need to respect our money better.
Fixed Income: EPF if you have it. Else PPF. Do not invest more than necessary. A corporate bond fund or a gilt fund can be added as and when necessary (e.g. after a rebalance). See Why I maximized PPF investment only after ten years.
Not maximizing PPF can be advantageous when you rebalance: Why we need to use this feature of PPF more often!
Also see: Gilt funds vs Dynamic Bond Funds vs Corporate Bond Funds: Which is the better choice? So, this leaves us with equity.
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Choice 1: Nifty or Sensex Index fund. This is the simplest and cleanest choice. Suitable for everyone. See: How Avadhoot Joshi evaluates his investment portfolio.
Choice 2: Agressive Hybrid fund. Sadly, no passive funds are available at the time of writing. It will be a touch less volatile than equity funds. See: Why is diversification the only free lunch in investing? And Why we badly need an aggressive hybrid index fund!
Choice 3: Flexicap fund. It may underperform Nifty or Sensex, but it is not a terrible choice.
Choice 4: Large and Mid cap fund. It could underperform a benchmark like NifyLargeMidcap 250, but it is not a terrible choice.
Choice 5: Low Volatility Index. It could again underperform the Nifty or the Sensex and is only for those who appreciate the notion of a risk-adjusted return.
That is it! No other funds are required. As the net worth grows, additional funds in the same or different categories (preferably from the ones mentioned above) may be added.
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