I want to invest Rs 10 lakh for a time period of two years. Where should I invest?
Your options are limited. Two years’ time horizon is not good enough for anybody to be considering investing in equity. The way to approach it would be to think of a short-term bond fund. Anything else would be problematic. A long-term bond fund or medium-term bond fund may translate into losses if interest rates go up.
So, one should consider short-term bond funds. You should consider doing deposit shopping where you get highest possible deposit rates. Very soon, the deposit rates are expected to go up, so one would be getting a decent fixed return. If you still want to get into equity, then it should be a very small part of your allocation. If you are targetting a Rs 10 lakh investment, then Rs 9 lakh should go into in fixed income and Rs 1 lakh in a decent equity fund. This can prevent your entire plan from going haywire if equity proves disappointing.
There have been many two-year time frames in the past where investors may not have made meaningful money, or may even have lost significant amounts. Think about it. Assume that we advised him in January, 2007. That was the time when everybody was very confident about equity. So, between 2007 and 2009, his losses would have been huge and his Rs 10 lakh would have become Rs 7.5 lakh in a guaranteed way. Therefore, a time-frame is important and two years is not enough to take chances.
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