Five Mutual Fund Categories To Consider For Short-Term Investments
Investments for a period of three to five years is considered short-term, according to experts.
Given the volatility in equity markets, it is better to invest in debt funds for short-term goals, which essentially means bonds, according to Mrin Agarwal, financial educator and founder, Finsafe India Pvt.
"In my interpretation, short-term investment refers to a period of less than three years," she said.
Liquid funds, ultra-short funds, arbitrage funds and low-duration funds are some of her recommendations.
Anything between 3-5 years sort of categorises as a short-term, according to Vishal Dhawan, founder and chief executive officer, Plan Ahead Wealth Advisors. "Arbitrage funds, in particular, have gained significant popularity in recent years," he said.
Some of the key benefits of arbitrage funds are as follows, according to him:
Returns generated on these funds track money-market yields.
More tax-efficient than debt funds.
Reduce risk by completely hedging equity exposure.
Spreads move based on flows, short-term rates and market direction.
Key things to look for while choosing arbitrage funds:
Consistency by analysing returns on a rolling basis.
Expense ratio—the lower, the better.
Exit load—the lower, the better.
Query 1: 60% portfolio exposure in PPFAS and rest in direct large-cap. Looking to add one or two more funds. What should 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 years
Mrin Agarwal: Both the stocks are from the same fund house and they have a 65% overlap in stocks held in both the schemes, which is very high. It is very important for you to diversify in mid-cap and small-cap funds like Mirae Midcap and Nippon Small Cap.
Vishal Dhawan: I would suggest the combination of adding some indexes and the exposure to international funds. I would recommend S&P 500 Index fund.
Query 2: I want to invest Rs 2 crore for over 2 years from my retirement fund and eventually start a Systematic Withdrawal Plan of Rs 1.2 lakh. Can you recommend a few funds?
Name: Manoj Gupta I Age: 61 years
Vishal Dhawan: It is important to divide funds into buckets. A fund in a short-term debt fund and a Balanced Advantage Fund can be an option. I would recommend ABSL Short Term debt fund; in the Balanced Advantage side, you can look at HDFC or ICICI funds. You can also invest in UTI and Parag Parikh Fund under index fund category.
Mrin Agarwal: If you are not willing to take risk, then you have to do the bucket strategy where whatever you need in next three years will be in ultra-short term and the balance can be in short term. I would suggest ICICI and HDFC Balanced Advantage Funds as my top picks for him.
