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How to move your corpus to an equity fund?

Here's a simple guide on shifting your lumpsum amount to an equity fund

How to move your corpus to an equity fund?

Hi, I am 40 years old and my PPF maturity of around Rs 15 lakh is due next year. I want to move to a better growth investment instrument like NPS wherein I am ready to stay invested for another 15-20 years. I am aware that my withdrawals from PPF will be tax free. Can you please suggest the strategy to systematically move my investment into these equity funds? - Suchit Poothia

You need to keep a few things in mind when you want to move your corpus to equity funds.

  • Duration: The thumb rule to decide the duration of your equity investment when you have a lump sum is to spread the investment across half the period it took you to earn that money, but it shouldn't be more than three years.
  • For instance, if it took you five years to build a corpus of Rs 30 lakh, then you can divide the corpus and spread the new investment across 12 to 24 months. This staggering approach to investing will help reduce the cost of investment as well as the risk.

  • Allocating to equity: Since the time horizon for your new investment is about 15 to 20 years, you should look at allocating more in equity. This is because they tend to beat inflation in the long-run.

Now if you wish to use the current corpus to invest in your NPS account, select the active choice option and allocate 75 per cent to equities. But do keep in mind the withdrawal restriction.

You can withdraw only up to 60 per cent of the NPS corpus as a lump sum when you reach the age of 60 and the remaining 40 per cent has to be used to purchase annuities. Partial NPS withdrawal is allowed only under certain special circumstances such as to meet medical expenses, education and marriage expenses of children, etc.

Other investment options
Alternatively, if you are a disciplined investor and won't touch the corpus until retirement, then you can invest in flexi-cap funds. These are pure equity funds and have no restrictions on withdrawals. Unlike the NPS which mostly invests in large-cap stocks, flexi-cap funds diversify their investments in mid and small caps too. This can provide you slightly better returns.

However, if you have never invested in equities before and are wary of allocating 100 per cent to equity, you can choose an aggressive hybrid fund. These funds invest about 65 per cent in equities and 35 per cent in debt. This mixture helps to contain the equity volatility and is better placed to provide more consistent returns as compared to pure equity funds.

Softening the risk is what is necessary for new investors so that you are psychologically strong to stay the course and do not end up exiting the fund in panic.

You can also choose from the list of funds particularly handpicked by our team of researchers.

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