I am 41 years old and intend investing in mutual funds through a monthly SIP of Rs 8,000. The objective is to generate funds for my daughter's higher education in 2011. Which mutual funds must I invest in? I am not averse to high risk and fully understand that it is not possible to time the market.
Given your attitude towards the equity markets, as well as a time horizon of close to four years, constructing an equity oriented education fund looks plausible. Yet we would recommend a balanced approach to investing. For the initial two years, you should look at investing Rs 5,000 per month in two large-cap equity funds. Choose from the list of 5-Star rated funds such as Reliance Vision and HDFC Equity. The balance Rs 3,000 ought to be channeled to one balanced fund such as Magnum Balanced or HDFC Prudence. Such an allocation will give you an 85 per cent exposure to equities and the rest will be invested in safer instruments. After two years of such a monthly outflow, you can look at increasing the allocation to the balanced fund and reducing or completely foregoing the investment in pure diversified equity funds. This will reduce the volatility in your portfolio as you begin to come closer to your goal. In addition to a clear investment strategy, you must put an equal effort at strategising a redemption plan. As you get closer to your goal, institute a systematic transfer plan (STP) in a medium term debt fund. Just as an SIP reduces the tremors of market movements, an STP or a systematic withdrawal plan will ensure that you are not caught up in a bear grip when you need your money the most.