What Types Of Mutual Funds Should You Choose at Different Life Stages?

Every individual has their own financial goals. And, to accomplish those goals, they invest in different investment schemes. One of the factors that play a massive role in determining the goal is the life stage they are at.There is not one investment product that can help you meet your different financial objectives at different life stages. So, it can be a little confusing on which mutual fund category to invest in and when. To help you, in this blog, we will look at different life stages and types of mutual funds that will be an ideal choice for you in those stages.From a financial planning perspective, an individual goes through three important stages in their lifetime – bachelorhood, being married and becoming parents, and retirement. At each of these stages, you may have different investment goals, which can be short-term, medium-term, and long-term.● Short-term goals are those that you want to achieve within 2-3 years.● Investments for medium-term goals usually have a 3-5 years period.● Long-term goals are those that you want to accomplish within 5-10 years.Now, let us see some of the common life goals that people usually have at different life stages and what types of mutual funds you should invest in to realise your dream. For better understanding, let us take the example of Mr. Rohan Pandey.

Mr. Rohan Pandy, a 25-year-old man, works in an MNC in Mumbai, and just like his fellow bachelor friends, he has no dependant family members and lives a carefree life. He also has certain dreams, and to achieve them, he saves about 20% of his income every month.One of Rohan's most cherished dreams is to visit Spain within the next one year. Now, since he has one year, he can invest in liquid funds every month. These are debt funds for a short period and have minimal risks. Thus, liquid funds can be an ideal choice of investment for his short-term goal.Apart from his short-term goal, Rohan also harbours other medium-term goals like buying a new car and getting married within the next four years. For this, Rohan could benefit from investing in Aggressive hybrid funds. These funds invest the corpus in equity and debt asset classes, with a significant part of the funds being invested in equities.Since Rohan is young, he can afford to take a more aggressive investment approach and allocate a more considerable sum in equity. This will help generate the capital needed for his goals, while the investment in debt funds will balance his portfolio and mitigate the risk to an extent.

Let's move five years ahead now. At this stage, Rohan is married and has one kid. Over the years, several things have changed in his life, and one of the most important things being his priorities and financial goals. While he still dreams of buying a car, his plans have now become more family-oriented in the sense that he wants to buy a bigger car so that it is more comfortable to travel with his wife and kid.Rohan recently got a hefty bonus from his company, which he plans to invest in buying a car after two years. In this situation, investing in short-term debt funds can be a good option for him. These are low-risk funds that provide slightly better returns than the traditional bank fixed deposits.Apart from buying a car, as Rohan's family has now grown, he aspires to buy an apartment in the next five years. It is a known fact that buying a house requires a significant investment. For a salaried employee like Rohan, it is impossible to fund the entire purchase from his own savings. So, he will have to avail of a home loan. But Rohan wants to make a hefty down payment so that you can borrow a lesser amount.At this stage, investing in Dynamic Asset Allocation Funds or DAAF could be an ideal choice for Rohan. These are hybrid funds that invest in equities and debt instruments like stocks and FD. However, they keep rebalancing and changing the percentage of fund allocation based on the market movement to generate the best possible returns.Even as Rohan is investing in buying a home, he is also thinking about retirement planning. And, since he works with a private organisation, he won't get any pension to sustain through post-retirement life. So, he wants to invest in specific investment tools to create a robust retirement corpus within the next 15 years.Besides, he wants to send his child to study at a B-school and is preparing to save for his education fees. Multi-Cap Funds is one of the most popular types of mutual funds for long-term goals, and it can be an ideal investment choice for Rohan to meet both his retirement and child education goals. These funds invest in stocks of companies of all sizes and across sectors. The diversification ensures that the risk is managed well while giving exposure to all key sectors and companies with immense growth potential.

Now, Rohan has reached the final stage of life. At this point, Rohan has accomplished all his life goals. And, now his focus is on taking care of himself and his spouse. His major expenses at this stage include medical bills and daily expenses.Post-retirement, Rohan won't get a salary, and he is looking for monthly income during his retirement life. He decides to start moving his corpus from pure equity funds to funds with minimal exposure to equity funds and invest in Conservative hybrid funds. It is a type of mutual fund that invests 75% to 90% of the money in FD-like instruments and the remaining amount in equities. The equity component allows him to get inflation-adjusted returns, while the low-risk investment keeps his money safe.Lastly, as Rohan retires, he can start withdrawing funds every month through SWP (Systematic Withdrawal Plan) to take care of his usual expenses.

Just like Rohan, you will go through these life stages. And, perhaps you will also have the same life goals. Choosing the right type of mutual fund alone will not help you accomplish your life goals through different stages, but you must be consistent with your investment.

The information contained herein is generic in nature and is meant for educational purposes only. Nothing here is to be construed as an investment or financial or taxation advice nor to be considered as an invitation or solicitation or advertisement for any financial product. Readers are advised to exercise discretion and should seek independent professional advice prior to making any investment decision in relation to any financial product. Aditya Birla Capital Group is not liable for any decision arising out of the use of this information.