Equity mutual funds outperform the fixed income asset class in the long run

-Name withheld on request

Considering that you have an investment horizon of 15 years and 20 years to build your child’s higher education and retirement corpus, I would suggest investing in equity mutual funds as the asset class of equities outperforms the fixed income asset class for a long time. defeats by a wide margin. Period. Assuming an annual return of 10%, you would need to invest approx. ₹15,000 per month to create a corpus of ₹60 lakhs in 15 years To build your retirement corpus in 20 years, you would need to invest about ₹13,000 per month assuming the same rate of return.

You can consider the direct plans of these large cap index funds and flexicap/’large & mid-cap’ funds- Parag Parikh Flexi Cap Fund or Mirae Asset Emerging Bluechip Fund; and Tata Index Sensex Fund or HDFC Index Sensex Fund—to build your corpus through SIP.

You can continue to invest in PPF to form a part of your retirement corpus. Since PPF is backed by sovereign guarantee and also offers tax free returns, investing in both PPF and equity mutual funds will offer you asset class diversification for retirement security.

However, if your risk appetite is high, consider investing in ELSS funds instead of PPF to enhance your retirement security and get income tax deduction under section 80C. ELSS funds have a lock-in period of just three years, which is the shortest among all investment instruments that qualify for Section 80C deduction. Also, being invested in equities, ELSS funds offer higher upside potential than PPF over the long term. You can consider investing in any of these ELSS funds – Mirae Asset Tax Saver and/or Axis Long Term Equity Fund – Direct schemes through SIP.

Naveen Kukreja is the Chief Executive Officer and Co-Founder of Paisabazaar.com. Questions and thoughts at mintmoney@livemint.com.