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How to choose funds at different stages of life?

Posted On Friday, Dec 28, 2012

You realize the importance of investing for your future when you are concerned about having a secure life with adequate monetary support for your family, because you know that no matter how easy things may look at this point of time, a wrong turn might just be ahead. So what you can do is plan for it and be prepared to face the fiscal challenges of life.

In case of investing in a mutual fund, the Asset Management Company or AMC pools money from many investors and invests that money in stocks, bonds, short-term money-market instruments, other securities or assets or some combination of these investments. One needs to understand that different mutual funds have different benefits during different stages of your life. Now, when you are planning to invest in funds, it is always important to know and realize which one would be the perfect one for you with adequate guidance from professional financial planners. Hence, picking the right fund for you is the first and the most important step.

Let' s look at different stages of our life and which funds fits the bill and why. It becomes important to pick those options that would cater the needs of your age. Few of the general categories that have been predetermined are mentioned as under:

If you are young and unmarried

The earning years start here. This is the phase where you can get into the habit of saving. Doesn’t matter if you are blessed with high-paying salaries early in your career or you toil your way upwards. Considering the fact that you may not have too many responsibilities and pressures, you have the leisure to follow your dreams and ambitions. Invest in Equity Funds via SIPs because you can risk a bit of money at this point of time and aim to earn good potential returns.

However, for those who have plans of marriage, buying a house or a car may prefer to invest more in relatively liquid investment avenues, which are less risky.

Model Portfolio:

50% - 80% diversified equity schemes (preferably through SIP); 10% gold ETFs and 10% - 40% debt funds.

If you are young and married

Being young and married is like a balancing act. On one hand you have certain responsibilities to look after and the other hand, if your spouse works, then you have a better savings and hence a more secure life. A cushion of assets created during the early earning years can be a huge confidence booster while taking up the responsibilities associated with marriage. Life and health Insurance policies should be given importance. Invest in equity but do not ignore debt and liquid schemes.

Model Portfolio:

55% - 70% equity schemes (preferably through SIP) and 45% - 30% debt funds.

If you are young and married with young children

When you are blessed with children, securing their future becomes your prime responsibility. Children these days have their own wishes and ambitions and as a good parent, it becomes your duty and responsibility to try and fulfill as many of those wishes. Expenses for education right from pre-school to schooling to higher education are growing much faster than regular inflation. Adequate investments are required to cover this. Hence, invest more in liquid plans and life / health insurance becomes more important and you can transfer your equity investments to these less ‘risky’ asset classes.

Model Portfolio:

45% - 60% equity schemes, 15% gold ETFs and 25% - 40% debt funds.

If you are married with older children

This phase can be tougher to face. On one hand you have your children who are all grown up and waiting to take a leap towards the next stages of their lives and on the other hand you have your own future to take care of. Marriages and providing houses for children, etc. can become a great challenge in case you have not planned for it, effectively. If investments in growth assets like shares and real estate are started early in life, and maintained, it would help ensure that the children enjoy the same life style as you did, when they set up their independent families.

Model Portfolio:

35% - 50% equity schemes, 15% gold ETFs and 35% - 50% debt funds.

If you are at your pre-retirement stage

Given the fact that you are almost on the verge of coming to an end of your career, the prime importance now becomes the safety and the well-being of you and your dependents. Hence, going for liquid and debt equity funds would be the best option. Maintaining minimum exposure to equity funds would also be wiser, because you cannot afford risking money. Debt and liquid schemes would bring in a certain, fixed income to your household.

Model Portfolio:

30% - 40% equity scheme, 10% gold ETFs and 50% - 60% debt funds.

If you are at your retirement

At the time of your retirement, your family should have an adequate corpus to live off and meet both the planned and unplanned expenses, without any financial stress. This can be done by ensuring you have built up an adequate contingency reserve in prior years and by prudent allocation of the retirement corpus.

The availability of any pension income and its coverage (only for the pensioner or extension to family in the event of death of pensioner) will determine the corpus requirement. Besides the corpus of debt assets to cover regular expenses, there should also be some growth assets like shares to protect the family from inflation during the retirement years.

Model Portfolio:

0% - 40% equity schemes, 0% -10% gold ETFs and 50% - 100% debt funds.

This is how people often realistically allocate their retirement corpuses because having 100% debt and living off the interest might not provide enough capital growth. So they tend to have a little in equity to beat inflation. Moreover one must understand that no matter what the age of the individual is asset allocation will also depend on the risk bearing ability of an individual.

Our objective of this article is to help you in choosing the right fund to help you allocate your assets wisely and manage your financial needs for now and future. However, you should consult a professional financial planner and get his/her advice before taking any investment related decisions.


Disclaimer, Statutory Details & Risk Factors:
The views expressed here in this article constitute only the opinions and do not constitute any guidelines and recommendation on any course of action to be followed by the reader. The data / information / opinions are meant for general reading purpose only and are not meant to serve as a professional guide / investment advice for the readers. This article has been prepared on the basis of publicly available information, internally developed data and other sources believed to be reliable, whilst no action has been suggested or offered based upon the information provided herein, due care has been taken to endeavor that the facts are accurate and opinions given are fair and reasonable as on date. The data / information / opinions are not intended to be an offer for purchase or sale of any financial product or instrument or units of the mutual fund. Readers are advised to seek independent professional advise and arrive at an informed investment decisions before making any investments. Neither of the sponsor, nor the Investment manager, nor the trustees, nor their respective directors, employees, affiliates or authors or representatives shall be liable for any direct, indirect, special, incidental, consequential, punitive or exemplary damage, including loss of profit arising in any way from the data / information / opinions contained in this article.
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