Which category of MFs is best for three year investment?

When it comes to investment there are various things one must keep in mind before investing viz. risk appetite, financial plan and tenure of investment. This always helps you to choose between the various asset classes in mutual funds. So, when you say that you have a time horizon of three years then you should also know for what you are investing whether it is a need or a want and what is the risk that you would be able to digest.

So, if we assume that you are a moderate risk taker, then at a broader asset class level you would be investing 50 per cent in equity and 50 per cent debt. However, as the time horizon is three years, you should invest in 100 per cent debt, if the purpose of savings is a need, or 30 per cent in equity and 70 per cent in debt, if the purpose of investing is your wants. From this, still, it is not clear in which asset class one must invest in?

If we consider the purpose of investing is your need wherein, as said earlier, investment should be 100 per cent in debt, specifically 70 per cent in short duration MFs and 30 per cent in ultra-short duration MFs. On the contrary, if the purpose of the investment is a want, then as said earlier you should invest in 30 per cent in equity and 70 per cent in debt, specifically 30 per cent in large-cap equity MF, 50 per cent in short duration MFs and remaining 20 per cent in ultra-short duration MFs.

Remember, the above asset allocation is for moderate risk taker it would be different for a conservative and an aggressive risk taker. For aggressive risk taker, if the purpose of the investment is a need then you can invest 80 per cent in debt and 20 per cent in equity, and if the purpose of the investment is a want, then you can invest 50 per cent in debt and 50 per cent in equity. On the contrary, if you are a conservative risk taker and your purpose of the investment is a need, then invest 100 per cent in debt and if the purpose of the investment is a want, then also invest 100 per cent in debt.