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Equity mutual funds are best for investments over the next 10 years to earn inflation-beating returns
12-Jan-2015 •Research Desk
I am working in the government sector. I accumulate only the minimum amount in my provident fund every month. Now I want to invest ₹5000 every month for the next ten years without withdrawing the amount. I want to know whether it is better to deposit this amount in my voluntary provident fund or in an equity mutual fund? If it is better to invest in an equity mutual fund, which ones do you recommend?
- Amitabh Narula
We would suggest equity mutual funds because your goal over the next 10 years must be to earn inflation beating returns. The EPFO is safe, but has not managed inflation-beating returns in recent years. Though equity funds carry risk, 10 years is a long enough time to reap the benefits of equity investing.
As you stated, start investing into equities through mutual funds in a systematic manner with say ₹5000 a month. You can either invest in two equity funds in the large and midcap category or own large-cap and mid-cap funds separately. Split your investment into two funds. If you would like large and midcap stocks in a single investment, HDFC Capital Builder, Franklin India Flexicap and Quantum Long Term Equity would be good choices. If you want to split your large and mid-cap investments, invest equally into Birla Sun Life Frontline Equity Fund and HDFC Mid-Cap Opportunities Fund. As a fundamental rule, start switching to debt in a systematic manner after 7 to 8 years to lock into returns generated until then. Review your investments once a year.
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