Hello Readers!!

In general, financial advisors say while planning your investment in a mutual fund always fix your goal before and then allocate your money in assets most suitable for your goals. Here what you have to keep in mind that for your single, you may require more than one kind of asset to invest in. Let us understand it!

Generally, what we do if our financial goal is a few months away, we end up choosing short-term asset classes like debt funds, that offer stable returns. On the other hand, if the goal is still more than 3 years away to achieve, then for these goals we actually end up picking long-term mutual fund schemes, like equity mutual funds.

However, there are many short-term goals for which you may require to invest in Equity funds while also there are long-term goals for which you may require to invest in debt funds!!

Let us understand all this fuss!!

Can Short-term Debt Funds Be Part Of Long-Term Investment?

Probably yes, short-term debt funds can be a part of long-term investment, here they actually play the role of safe cushion for your long-term investment. How? Suppose you invested in an equity mutual fund for a financial goal that is 10 years away, so basically, you would invest for long 10 years, but have you ever wondered how will you manage your finances if you get any financial emergency in between this long 10 years of investment!

Only here, if you would have a part of the money allocated in short-term assets such as debt funds, you can easily tackle your short-term expenses without hitching your long-term investment. While planning your long-term investment, instead of having only one equity fund allocated to this, you can split the exposure 80% in equity and 20% in debt to maintain lower risk.

Investing through this kind of strategy will help you feel protected when it comes to your finances in uncertain times like the one we are facing right now, The COVID-19 Pandemic Crisis! Also, this kind of strategy helps you maintain diversification in your portfolio which ultimately helps you reduce your portfolio risk.

Can Long-Term Equity Funds Be Part Of Short-Term Investment?

How much you invest and where you invest is in the end decided by what your goal is. If you have a defined goal where you know the precise amount of money required at the precise time a few months away, then this allocation can be through one type of product only. As per the goal you might look picking up from different debt funds like for 6 month-1-year periods you may pick liquid debt funds or ultra-short-term bonds or for 1-2 years you might pick one from short-term debt funds.

In order to diversify your portfolio, you may invest across more than one liquid fund if the amount is too big, other than that you may not need more products.

However, if your goal is to build an emergency fund or you want principal protection with some growth, you can mix and match both debt and equity products to arrive at the final asset allocation for this single goal.

An emergency fund, for example, may remain unused for a long period of time. Once you have accumulated a sufficient sum, instead of just leaving all the unused balance in low-yielding debt, you can shift out 5%-10% into low-risk equity.

Your emergency fund will remain intact for its right purpose but with the potential for some growth as amounts remain unused. Through this way of strategy, you can achieve both together that is capital protection with growth, for that invest in liquid funds for the whole year and at the end of the year move very small amounts. Continue this for 10-12 years and you will be able to marry a short-term goal investment with growth over time.

Overall, it can be concluded that goals are much important to be defined before we plan to invest. And while choosing the right asset allocation for your goal, you do not need to stick with the conventional strategy, instead, you can use a combination of products across asset classes in order to achieve the outcome in the most suitable risk-adjusted structure.

Keep reading our articles for more updates on finance and investment!!

For any kind of query you can contact us at Shri Ashutosh Securities Pvt Ltd., we are here to help you in any way possible.

Happy Investing!

(Mutual Fund investments are subject to market risk Illustrations are for example only, there is no guarantee of returns. Past performance is not an indicator/guarantee to future returns).