3 days ago

Why Young Investors Should Not Avoid Debt Mutual Funds

Should young investors avoid debt mutual funds? Experts explain why debt can still matter in your 20s and 30s · livemint.com

Young people often have many years to invest, so they may be able to hold more equity.

But that does not mean they should put all their money into equity.

Debt investments can make a portfolio steadier and easier to manage when markets fall.

The right mix depends on when the money will be needed, not only on the investor's age.

Money needed for a holiday within a year may be kept entirely in debt.

Money for a wedding in three to five years may use a mix of equity, debt and gold.

Retirement money can usually tolerate more equity because it may not be needed for many years.

Short-term debt funds can offer liquidity, but investors should understand their risks and tax effects.

An emergency fund should mainly be kept somewhere that allows quick access to cash.

Key facts

Short-term goals: For a goal such as a holiday within one year, a 100% debt allocation can be considered.
Wedding example: For a wedding goal three to five years away, the example suggests about 60% equity, 30% debt and 10% gold.
Retirement example: For retirement, described as more than 25 years away, the example suggests about 80% equity and 20% debt.
Debt fund options: Liquid, ultra-short-duration and money market funds may be considered for relatively short-term requirements.
Funds requiring caution: Investors are advised not to choose credit-risk funds only for attractive returns or longer-duration funds without understanding interest-rate effects on NAVs.
Emergency corpus: Choudhary suggests keeping six to 12 months of expenses, plus annual recurring expenses such as insurance premiums and children's tuition fees.
Article discrepancy: The retirement example is initially described as having a horizon of more than 25 years, but a later passage refers to it as more than five years.

livemint.com · 3 days ago