How to put money into mutual funds

NEW DELHI :

I’m 28, and my take-home month-to-month wage is about ₹80,000. I’ve collected ₹5 lakh in mounted deposits until now. I contribute ₹1.2 lakh annually to public provident fund (PPF) for my retirement safety and for saving taxes beneath Section 80C of the Income Tax Act. I can save ₹30,000 monthly, and I wish to put money into mutual funds. How ought to I proceed?

—Name withheld on request

Given your younger age, I might suggest you to put money into equities for reaching long-term monetary objectives, that’s, these maturing after 5 years. Start by figuring out your monetary objectives maturing inside 5 years and people maturing after 5 years. As equities might be very risky within the brief time period, put money into the direct plans of those brief time period debt funds—ICICI Prudential Short Term Fund and HDFC Short Term Debt Fund—by way of SIPs to realize your short-term monetary objectives. You can use on-line SIP calculators to search out out the month-to-month contributions required to realize these short-term monetary objectives, assuming an annualized return of 5% each year.

Your current investments in mounted deposits can be utilized as emergency funds for coping with monetary exigencies arising from job loss, sickness, incapacity, and many others. Aim to keep up an emergency fund sufficiently big to fulfill unavoidable bills and month-to-month contributions for essential monetary objectives for at the least six months.

The remainder of your month-to-month surpluses must be invested in fairness funds to realize long-term monetary objectives. You can distribute the surpluses in direct plans of those large-cap index funds and flexi-cap/ “large- and mid-cap” funds—Tata Index Sensex Fund or HDFC Index Sensex Fund; and Parag Parikh Flexi Cap Fund or Mirae Asset Emerging Bluechip Fund—by way of SIPs.

If your threat urge for food permits, you possibly can put money into Equity Linked Savings Scheme (ELSS) funds as an alternative of Public Provident Fund (PPF) to serve the dual goal of saving tax beneath Section 80C and obtain your retirement safety. ELSS funds supply greater liquidity as they’ve a lock-in interval of three years, the shortest amongst all funding devices qualifying for Section 80C deduction. As ELSS funds put money into equities, and equities as an asset class beats mounted earnings devices by a large margin over the long run, investing in ELSS may help generate an even bigger retirement corpus than PPF.

Naveen Kukreja is the chief government officer and co-founder of Paisabazaar.com. Please mail your queries and views to mintmoney@livemint.com.

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