Equity Mutual Funds Beat the Long-Term Fixed Income Asset Class


I am 40 years old and I have a net monthly salary of 1,000,000. I want to invest in mutual funds to accumulate 60 lakh in 15 years for my child’s higher education and 1 crore in 20 years for creating my retirement corpus. I have already been investing in the PPF for five years apart from my monthly EPF contribution to save Section 80C tax as well as to build up my pension corpus. Please suggest mutual fund plans and the monthly investment required to achieve these goals.

-Name masked on request

Since you have 15-year and 20-year investment horizons to build your child’s college and retirement corpus, I would suggest investing in stock mutual funds because class d Equity assets beat the fixed income asset class by a wide margin over the long term. term. Assuming a 10% annualized return, you will need to invest approximately 15,000 per month to build a corpus of 60 lakh in 15 years. To build up your retirement capital in 20 years, you will need to invest approximately 13,000 per month assuming the same rate of return.

You may want to consider the direct plans of these large cap index funds and flexicap/’large and mid cap’ funds—Parag Parikh Flexi Cap Fund or Mirae Asset Emerging Bluechip Fund; and Tata Index Sensex Fund or HDFC Index Sensex Fund—to build your corpora through SIP.

You can continue to invest in the PPF to build up part of your retirement corpus. As PPF is backed by a sovereign guarantee and also offers tax-free returns, investing in both PPF and mutual funds will provide you with asset class diversification for retirement security.

However, if you have a higher risk appetite, consider investing in ELSS funds instead of PPF to enhance your retirement security and benefit from an income tax deduction under Article 80C. ELSS funds have lock-up periods of just three years, the shortest of any investment vehicle eligible for the Section 80C deduction. In addition, being invested in equities, ELSS funds offer greater upside potential than PPFs over the long term. You may consider investing in the direct plans of one of these ELSS funds – Mirae Asset Tax Saver and/or Axis Long Term Equity Fund – through SIP.

Naveen Kukreja is the CEO and co-founder of Paisabazaar.com. Queries and views to [email protected]

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