The first thing that you should be doing before you start looking at specific mutual funds is determining the category or asset class in which you want to invest your money. This is generally done based on your needs.
Let us quickly have a look at the major mutual fund categories that we provide our clients based on individual needs:
– Equity funds:
These are funds with a long-term investment horizon of more than 5 years. Over the years, equity mutual funds have provided investors with annual returns of around 14-16% in the long term.
– Debt funds:
These are funds with short-term investment horizon with low risk. These funds best suit those who are looking at investing for less than 5 years. Over the years, debt funds have provided investors with annual returns of around 8-9% in the long term.
– Tax saving funds:
These funds provide investors with tax savings under sec 80C of the Income Tax Act. Tax saving mutual funds give you the double benefit of tax and investment in equity mutual funds. However, investors must note that investment in tax saving funds have a lock-in period of 3 years.
Now, let us debate on whether your mutual fund investment should be different from that of your father. In your case, you’ve just hit 30s where you are at your ambitious best with high risk propensity. You will tend to expect much more from life and therefore, your financial plans will be based largely on your lifestyle needs along with retirement plans. You can invest part of your money that you need in the near term in debt funds. Further, you can park the other portion of your money that you need in the longer term in equity mutual funds. This is an investment approach that you can take simply because you are young and possess higher risk appetite compared with you father.
Yes, the investment planning and asset allocation strategy will be different for you and your father. This is largely because your risk propensity is dependent largely on your financial goals. Your father is 50+, and thus, his requirements at this point in life will be totally different from yours. His financial goals will be surely different. He may not want to take high proportion of risk at his age, which will affect his financial goals. Thus, if his financial goal were security of capital or generating regular income, debt funds would make more sense to him as an investment option despite the time horizon being shorter than yours. If his objective is to create inheritance, he could think about equity funds.
The bottom line is that both your father and you must decide upon the best possible combination of mutual fund categories, which cater to the following:
- – Your risk propensity
- – Your financial goals
- – Your specific needs such as requiring money in the short term or long term
The fund portfolios that you choose within those selected categories are designed in a manner that they replicate the exact characteristics of those categories.
If you find it difficult to make you fund choice, go to a professional expert. They will not only help you and your father with the best possible mutual fund investment options, but will also guide you with regard to your financial goals.
Disclaimer: Investment in securities market are subject to market risks, read all the related documents carefully before investing.