According to Mrin Agarwal, financial educator and founder, Finsafe India Pvt., given the volatility in the stock market, it is better to invest in bond funds for short-term goals.
“My interpretation of short-term investments is anything less than three years,” she said.
Liquid funds, ultra short term funds, arbitrage funds and low duration funds are some of her recommendations.
Anything between three and five years falls into the short-term category, according to Vishal Dhawan, founder and CEO of Plan Ahead Wealth Advisors. “Arbitrage funds, in particular, have become quite popular in recent years,” he said.
According to him, the main advantages of arbitrage funds are:
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Returns from these funds track money market yields.
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More tax efficient than bond funds.
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Reduce risk by fully hedging your equity exposure.
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Spreads fluctuate based on flows, short-term interest rates, and market direction.
Important points to look out for when choosing an arbitrage fund:
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Maintain consistency by continually analyzing returns.
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Expense ratio—the lower the better.
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The lower the outlet load, the better.
Question 1: I have 60% of my portfolio invested in PPFAS and the rest in direct large caps. I want to add one or two more funds. What would be my approach as a long term investor?
Current investments: Parag Parikh Flexi Cap (Rs 23.72 lakh) and Parag Parikh Tax Saver (Rs 5 lakh).
Name: Ram I Age: 33
Mr. Murin Agarwal: Both the stocks are held by the same fund house and the overlap in shares held in both the schemes is quite high at 65%.It is very important to diversify across mid and small cap funds such as Mirae Midcap and Nippon Small Cap.
Vishal Dhawan: I would recommend a combination of adding some indexes and exposure to international funds, I would recommend an S&P 500 index fund.
Question 2: I want to invest Rs 2 crore from my retirement fund over 2 years and eventually start a regular withdrawal plan of Rs 12 lakh. Can you recommend some funds?
Name: Manoj Gupta I Age: 61
Vishal Dhawan: It is important to segregate funds into buckets. Short term bond funds and funds under balanced advantage funds are your options. I would recommend ABSL Short Term Bond Fund. On the balanced advantage side, you can consider HDFC or ICICI funds. You can also invest in UTI and Parag Parikh funds under the index fund category.
Mr. Murin Agarwal: If you are not willing to take risk then you should go for a bucket strategy where whatever you need for next 3 years is ultra short term and the rest is short term.I would most recommend ICICI and HDFC Balanced Advantage Funds for him.
