Dhaval Kapadia, Director, Portfolio Specialist, Morningstar Investment Adviser (India) answers queries in The Financial Express, from where the below has been taken.
I want to invest Rs 5,000 every month over the next 10 years to fund my son’s higher education.
What type of fund should I select to achieve this goal?
– Deepak Kapil
The asset allocation or the mix of various assets, such as equity, debt and gold, held in a portfolio is considered one of the key determinants of its performance.
Should gold form a part of my portfolio?
A suitable asset allocation is typically based on one’s investment horizon and risk appetite. Generally, longer the investment horizon and higher the risk appetite, higher would be the allocation to equity.
Considering your investment horizon of 10 years, you could choose to invest 60-65% of the monthly investable amount through a Systematic Investment Plan, or SIP, into a diversified equity fund that invests in a mix of large-, mid-, and small-cap stocks. The balance can be invested in a debt fund like a short term fund or a dynamic bond fund.
Alternatively, you could invest in a balanced fund that invests 65-70% in equity and the remainder in debt.
Can you increase the equity exposure in balanced funds?
You should review your investments in these funds every 12 to 18 months to ensure that the performance is in line with your expectations, market benchmarks and peer group.
Does your portfolio need an annual review?
As you approach the end of your investment horizon, it is advisable to gradually reduce the allocation to equity in your portfolio and bring it to zero, this could be done between the sixth and eighth year.
The proceeds can then be invested in a liquid or short term debt fund till the funds are required.
