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I have a reasonable level of risk appetite and plan to invest Rs 1.5 crore from a property sale into equity. I will only need this money after 12 years. Which type of mutual funds should I invest in, over how many months should I spread this investment, and what is your opinion on choosing index funds like the Nifty Midcap 150 Index? - Rajan
If Rs 1.5 crore accounts for around 50-60 per cent of your net worth...
Spread the money over three years. This approach can help manage the emotional risk of investing a large sum at once, especially if the market declines by more than 10 per cent soon after your investment.
If Rs 1.5 crore only makes up 10-15 per cent of your total net worth...
Consider a shorter time frame of six months to a year to spread the investment.
Where you should invest
- Since you can keep your money invested for 12 years, equity is certainly an appropriate asset class.
- You may allocate 20-50 per cent of your money in a mix of mid-cap, small-cap and even micro-cap funds to optimise returns.
- It's also important to allocate a substantial portion to large-cap funds. These large-cap investments can add stability to your portfolio, particularly during market volatility.
- A Nifty Midcap 150 Index fund could be a good option to consider. This index fund is passive in nature, meaning it simply buys the companies that are part of the Nifty Midcap 150 Index. (Want to know more about index funds? Read this article.)
- You should also look at actively managed mid-cap and small-cap funds, as selective stock picking can add significant value over time.
Quick tip
- Having a blend of active and passive funds in your portfolio is always better.
- However, if you find it tough to evaluate fund managers or pick the right actively managed funds, passive funds can offer a simpler, cost-effective solution.
Also read: Where can I invest Rs 12 lakh for 3-4 years?
This article was originally published on October 21, 2024.
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