Dhirendra Kumar explains how to choose the right fund category based on your needs and risk-taking capabilities
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Where should I invest a corpus of Rs 1 lakh for my 5-year-old son? Which fund category should I invest in - flexi cap or aggressive hybrid? Also, should I invest in only one fund or more through the SIP route? Can you please suggest some funds for this purpose?
- Sunil Basu
Both categories of funds are appropriate for the said purpose. However, both categories are relevant for two different kinds of investors. Suppose you have been investing in mutual funds for the last 3-4 years and have sailed through the ups and downs of the market movements without getting panicked, or you were not fearful when the market crashed by about 30-40 per cent within a few weeks in March last year. In that case, you should invest in a more aggressive fund category. Because if you are investing for a goal of, say, higher education for your 5-year-old son, you will stay invested for about 10-15 years of age. So if you can stomach the market volatility of your investment in aggressive funds during this period, you would be able to generate commensurably higher returns than other categories.
But it is difficult for many investors to do so. I know that in the case of most newbie investors when they see the worth of their investment go down quickly, they are terrified. Such investors should not even think about an equity category like flexi-cap. They should invest in aggressive hybrid funds.
But based on the nuanced way in which you have framed your question, I presume you are an experienced investor and may invest in funds from either category - flexi-cap or aggressive (mid cap or small cap). If you decide to invest in the aggressive category, then invest in at least two different funds. However, if you invest in a fund from the flexi-cap space, only one fund may be enough to cater to your requirements as they tend to be well-diversified.
Your flexi-cap fund choices could be among Axis Flexi Cap Fund and Parag Parikh Flexi Cap Fund. Among the aggressive ones, you may go for DSP Midcap Fund or SBI Small Cap Fund or Kotak Emerging Equity Fund.