- The Investment Horizon of your Financial Goals
- Your Risk Profile
The Investment Horizon of Your Financial Goals
Highly Risky in short-term (1-3 years)
Very high volatility in returns and high risks of losing money.
Mid Risk in medium-term (3-7 years)
Both volatility and chances of losing money reduce substantially
Almost risk-free in long-term (>7 years)
Very sharp reduction in volatility and very low chances of losing money
Financial goals can be of different types, and with different investment horizons. They can be short-term goals (such as a piggybank fund, a travel fund, a contingency fund), medium-term goals (the purchase of a house, funding of a dream vacation) and longer-term goals (planning for your child’s education, retirement planning).
The appropriate fund category would differ across these different investment horizons. We provide below, what are considered to be the most suitable fund category across each major investment horizon.
Less than 1 yr
Low Duration Debt Funds
- Low Interest-Rate or Credit Risk
- No Exit-Loads
- Good Alternative to Bank Savings & Current Accounts
1-3 Years
Short Duration Debt Funds
- Low Interest-Rate or Credit-Risk
- Higher Yields than Low-Duration Funds
- Good Alternative to Bank Fixed Deposits
3-7 Years
Hybrid Funds
- Mix of Debt & Equity
- Good Balance between Growth & Stability
- Sub-category based on Individual Risk-Profile
> 7 Years
Equity Funds
- Low Risk-High Return in Long-Term
- Best Risk-Reward across Asset Classes
Your Risk Profile
The other consideration while choosing the right fund category, is your risk profile.
While the core recommended asset class, should still ideally be driven by the investment horizon, your risk-profile can help determine the sub-asset class to choose amongst the various options.
Conservative
- Short-Term: Very low-risk Debt funds (ultra, low & short duration)
- Medium-term: Conservative Hybrid Funds (conservative hybrid, equity savings scheme)
- Long-term: Large-cap Funds
Moderate
- Short-Term: Low-risk Debt funds (ultra, low & short duration. Corporate Bond and Banking & PSU also can be considered)
- Medium-term: Balanced Hybrid Funds (equity savings scheme, dynamic and aggressive hybrid)
- Long-term: Large & Mid-cap, Multi-cap & Flexi-cap Funds
Aggressive
- Short-Term: HIgher-risk Debt funds (mix of duration based on interest rate view, credit risk)
- Medium-term: Aggressive Hybrid Funds (equity savings scheme, dynamic and aggressive hybrid) or even Equity Funds can be considered
- Long-term: Mid-cap, Small-cap or Sectoral Funds
It is important to understand, that these are Standard Benchmarks. Ultimately, the right category needs to be based on your
Unique Requirements & Underlying Market Conditions.
To get a better understanding of what is the most suitable category for your specific requirements, feel free to get in touch with one of our specialists by using our WhatsApp Live Chat button below.
Indicative Risk-Return Payoffs of Core Asset Classes
The table below provides a broad indication of the risk-return across different asset classes, across weak, average and strong market conditions. Actual returns could vary in very strong or very weak market conditions.
