Is there any mutual fund categorisation based upon tenure of investment? If so, which are the ones suitable for long-term and short-term investments? I want to invest some money for my granddaughter and will need it after 15 years for her educational expenses. Please suggest a mutual fund product or category
-A.V. Srinivasa
Yes, there are different classifications within mutual funds, which are appropriate for different investment tenures. Ideally a long-term investor with a high-risk appetite could look at equity diversified funds, as in the long run, the equity asset class has always outperformed other asset classes by a good margin. For an investor with a short time horizon there are varying fund options. For instance a person who wants high liquidity and returns a little higher than bank deposits, can look at ultra short-term debt funds that invest in short-term financial instruments.
An investor with a medium term horizon of 1-2 years, can look at hybrid funds with varying equity and debt exposure.
In your case you could look at dividing this pot of money between diversified equity funds and balanced funds. You could aim at a 75-80 per cent equity exposure, with the remainder invested in debt instruments. As you reach closer to your targeted 15 years, you should start moving your equity investments to debt funds. You could start this process after 11-12 years and gradually reduce the equity allocation. This can be done by instituting a systematic transfer plan, wherein a fixed amount is transferred from specified equity funds into debt funds at regular intervals.
In effect this is similar to a systematic investment plan, except that in a SIP the investment flows from a bank account into the fund and here it flows from one scheme to another. The advantage here being that you end up avoiding the issue of market timing while liquidating your equity investments, which in turn safeguards your investments from the effects of market volatility.
This article was originally published on March 13, 2007.
Ask Value Research 
New episodes every Friday 
New Process Alert 
Seems like you've uploaded a wrong QR code. Please upload the QR code downloaded from MF Central platform.
