Your Queries (Mutual Funds): Go for balanced advantage fund if you have 5-year investment horizon

© Provided by The Financial Express This way your portfolio will be diversified across asset class, category, scheme & AMC. It is advisable to keep reviewing your portfolio at least one in a year.

By Sanjiv Bajaj

I have Rs 20 lakh and need it to buy a house after five years. How should I invest the money to ensure safety and get high returns?

-A K Venkatesh

You may choose dynamic asset allocation or balanced advantage funds for the investment for the next five years. These funds are managed dynamically between equity & debt instruments with a strategy to protect the downside with debt exposure while participating the upside in equities. Investing in pure equity funds could be risky while investment in pure debt funds offers very low yield. This strategy strikes a balance between risk and returns with lower drawdown than a pure equity investment and higher return than a pure debt investment.

I am 38 years old and want to invest Rs 25,000 per month for the higher education of my eight-year-old child. What kind of mutual funds should I go for to reap the return when he is 23?

-Arjun Jain

You have not mentioned how much risk you can bear, considering your age and goal, we are assuming your risk appetite will be long term-aggressive . You may create a mutual fund portfolio consisting of pure equity & hybrid funds. The monthly investment can be divided in an 80:20 ratio, respectively. Flexi-cap, large & mid-cap, mid-cap, small portion in value and small-cap funds in equity while dynamic asset allocation funds in hybrid category can be considered.

This way your portfolio will be diversified across asset class, category, scheme & AMC. It is advisable to keep reviewing your portfolio at least once in a year.

I have been investing Rs 5,000 in a mutual fund for three months. What are the deductions on withdrawal? How much will I get after 20 years if the average return is 12%?

-Anurag Majumder

If we consider a 12% annual growth rate on your Rs 5,000 monthly investment over the next 20 years, it will accumulate a corpus of around Rs 50 lakh. Taxation in mutual funds is classified as short-term capital gain and long-term capital gain depending upon the investment horizon and asset class. Debt, equity & hybrid have their own matrix of taxation. Past data and foreseeable market conditions may help us to get a reasonable estimation of 5% inflation annually.

The writer is joint chairman & MD, Bajaj Capital. Send your queries to fepersonalfinance@expressindia.com