Dhaval Kapadia, Director, Portfolio Specialist, Morningstar Investment Adviser (India) answers queries in The Financial Express, from where the below has been taken.
For how many years should I invest in SIPs?
What kind of funds should I look at?
— Tanmay Sharma
The asset allocation or the mix of various assets including equity, debt, and gold, held in a portfolio is considered one of the key determinants of its performance.
A suitable asset allocation is typically based on one’s investment horizon and risk appetite, or risk-taking willingness.
Generally, longer the investment horizon and higher the risk appetite, higher would be the allocation to equity. Typically, for an investment horizon of up to two years, debt funds are suitable, hybrid fund categories like monthly income plans (or MIPs) can be considered for a horizon of two to three years, balanced funds for a horizon of three to five years, and equity funds for a horizon of five years and above.
The duration and value of a systematic investment plan, or SIP, would depend on the targeted corpus value and the investment horizon. Various online goal-based calculators could help you determine the SIP amount based on the expected return on the investment and the targeted corpus value.
The tenure of SIPs should typically end at least two to three years prior to the end of one’s investment horizon. For example, for an investment horizon of 10 years, the SIP duration could be seven to eight years. This approach would allow the entire corpus, particularly the investments made through the final 12 to 24 SIPs, to stay invested in the market for a period of two to three years and possibly overcome any interim volatility.
Further, as the liquidity requirement for meeting one’s goal approaches, it is prudent to reallocate or shift the corpus gradually from equity to less volatile debt funds/ instruments.
