It is best to keep emotions aside when making important financial decisions. It is only when you base your investment decision on your final goal and then choose allocation patterns accordingly, that you can make your money work for you and fetch you better returns.
Save for large purposes in the short term
If you have a large goal in mind, that needs to be met in the short run, you will at all costs have to ignore all the noise around you. Be conservative with your money, because, considering the short time frame that is now available to you, you should not be taking a risk.
For goals like this, which are less than three years away, keep a large part of your assets in fixed income. In the short term view, preserving the capital is more important than getting returns. A good idea would be to invest in a balance of short duration and ultra-short funds. If you want to be more conservative, you can have a look at banking and PSU bonds. The majority of your scheme’s assets have to be in AAA and equivalent securities.
Gilt fund investments in government securities are also a good idea since these have delivered good returns over the past one year. But, these are best avoided because these have high-interest rate risks associated with them, and you do not have a long term view here.
If you belong to the lower income tax bracket sector, you can also invest in bank FDs and other saving schemes.
Investing for the medium run
These are goals that are 4-7 years away, or maybe even 10 years away. For such goals, corporate bond funds and banking and PSU bond funds are all good options. The dominating aspect of your portfolio here should be the fixed income.
If you want to invest for more than five years, you can do so in equity funds, but after taking your risk appetite into account. You could also invest in an index and multi-cap equity funds in a staggered manner over 3-6 months. However, switch from equity to bonds as you move closer to your goals. A year or two before your financial goal, you could opt for systematic transfers to switch from equity MFs to liquid schemes.
Investing for the long term
Equity mutual funds are great options to look at, especially when you are looking for a long term, let us say 15 years or so. A mix of the index and active funds is a really good option. Go for the systematic transfer plan route to invest inequities. And if you are comfortable doing so, allocate 10 percent of your money to international funds to benefit from geographical diversification. Of course, do this in a staggered manner. Index funds focused on the US markets can be looked at for international quality exposure.
Investors, who are willing to invest for the long term, and have an appetite for high volatility, can consider mid-cap funds. However, make sure that you don’t go overboard. And as is always suggested, you can keep 5-10 percent of your portfolio in gold. When economies do not perform well and equities fall, gold comes across as the savior. Sector and theme funds are best avoided when investing for the first time inequities. PPF is also a good option if liquidity is not very important for you.
Senior citizens also want regular incomes, and thus try and invest for the same. However, a falling interest rate environment is the real challenge here. However, if you are comfortable locking in your money, you can invest in SCSS’s like the Pradhan Mantri Vaya Vandana Yojana.
Irrespective of your financial goals, do not ignore the importance of your emergency fund. An amount equal to six months of your expenses needs to be sage in a bank FD or liquid funds. If you foresee a salary cut or a job loss, increase the size of the emergency fund at all costs.