I am 46 years old and I live in Pune. I have five fixed deposits amounting to Rs12 lakh. I also have an RD going on (Rs12,000 a month). I invest Rs1 lakh in PPF every year. I want to move my money to mutual funds to get better returns. Kindly suggest how much money, and from which specific investments, I should move to mutual funds. I am not comfortable with exposing myself to very high risk, so please limit my equity exposure to not more than 40%. Can you also suggest a few schemes to invest in?
All your investment choices thus far have been in the asset class of debt instruments—fixed deposits (FDs), recurring deposit (RD), and Public provident Fund (PPF). Getting started with mutual funds will enable your investments to get exposed to the equity market to take advantage of its higher long-term return potential. There are two ways in which you can go about achieving your objective. Mutual funds can be used for debt as well as equity investments. So, you can use either your current deposits as the debt instruments in your overall portfolio, or you can use mutual funds for both debt and equity investments. The advantage in the latter method is the tax benefit of indexation that you get for investing for more than 3 years in debt mutual funds (indexation will lower your taxable capital gains and hence lower your tax outgo).