Q. I am a 35-year-old unmarried woman with a government job. My net mutual fund contribution is around ₹8 lakhs so far. My short-term goal is to save ₹10 lakhs for my wedding and ₹5 crores for my retirement. Can I invest for these short-term and long-term goals simultaneously? How?
It is possible to invest simultaneously to meet both short-term and long-term goals. With the right asset selection and allocation, it can be an effective way to ensure you reach both your financial goals.
Short-term goal: Wedding
Your short-term goal is to save ₹10 lakhs for your wedding, which is let us say about 3 years away. You can invest in a mix of liquid funds and short-term debt funds. Compared to savings accounts, these funds are relatively low-risk and provide higher returns. The money invested in these funds will be easily accessible when you need it.
Park funds to meet 3 months to 6 months of expenses in liquid funds that can be easily encashed. These funds invest in highly liquid money market instruments, like treasury bills, commercial papers, and certificates of deposit, with maturities of up to 91 days. The objective of liquid funds is to provide investors with relatively high returns at low risk and low volatility.
Short-term debt funds invest in fixed-income securities with maturities ranging from 1 year to 3 years. They have a low to moderate risk profile and provide higher returns compared to liquid funds.
By investing in a mix of liquid and short-term debt funds, you can balance the risk and reward to suit your short-term goals. These funds do not have any lock-in period and exit loads. However, as these fall under the debt category, these funds will attract short term capital gains tax, if withdrawn within 3 years of investing.
Long-term goal: Retirement
For retirement, you can invest in a mix of equity and debt mutual funds according to your risk tolerance level.
Equity-oriented mutual funds invest in stocks and have the potential to provide higher returns over the long term. However, they are also relatively high-risk investments. These funds generally do not have any lock-in period except for equity-linked savings schemes (ELSS), but there is an exit load of 1% if withdrawn within 365 days of investing.
Gains generated from these equity funds will attract long-term capital gains tax if withdrawn after one year of investing subject to an exemption limit of ₹1 lakh.
To mitigate the risk, you can put a portion of your money in long-term debt mutual funds, which invest in fixed-income securities and have a lower risk profile. You can also invest around 5% of your portfolio in gold exchange-traded funds (ETF) or gold mutual funds. These provide a hedge against inflation in the long run.
Based on your risk appetite, balanced investing in both equity and debt funds can help you achieve your long-term goal while also diversifying your portfolio. This way you will also reduce the overall risk.
It is important to regularly review and rebalance your portfolio. Also, revisit your goals and risk tolerance on a periodical basis.
As you get closer to your wedding and, later, your retirement, you may need to reallocate funds from risk-oriented investments to safer asset classes, thereby ensuring that you achieve your goals.
Consider seeking the help of a financial advisor to create a comprehensive investment plan that fits your specific needs and goals. This expert can help you assess your risk tolerance, determine the right asset allocation for your investment portfolio, and provide guidance on how to adjust your investments over time.
International Money Matters Pvt Ltd is a 20-year-old SEBI registered financial planning-cum-investment advisory boutique. Please click here to find out more.
