Get additional ₹10k income per month. Should I go for MF or stick with FD?

-Name withheld on request

Considering your young age, I would suggest you to invest in equity funds to achieve your financial goals maturing after 5 years. Equity, as an asset class, outperformed fixed income instruments such as fixed deposits and debt funds by a wide margin over the long term. However, since equities can be very volatile in the short term, invest in short term debt funds or fixed deposits as per your risk appetite, to park your emergency fund and invest for short term financial goals. While fixed deposits offer higher income certainty and better capital security, debt funds generally generate higher returns due to exposure to market-linked fixed income instruments.

You can consider the direct schemes of these short-duration debt funds — ICICI Prudential Short Term Fund and HDFC Short Term Debt Fund — to achieve your short term financial goals. For your long term investments, you can consider these large-cap index funds and the direct schemes of Flexicap/’Large & Mid-cap’ funds — Tata Index Sensex Fund or HDFC Index Sensex Fund; and Mirae Asset Emerging Bluechip Fund or Parag Parikh Flexi Cap Fund — through SIP. Investing through SIP mode will ensure financial discipline and also bring in rupee cost averaging during market corrections.

Also, make sure to buy a term insurance cover equal to at least 15-20 times your annual income and top it up whenever you see an increase in income. To increase your monthly SIP contribution in future, you can either start fresh SIPs in the same fund or use the SIP top-up facility, if available, from the fund house concerned at predetermined periodic intervals. To increase the SIP amount automatically.

-Naveen Kukreja – CEO & Co-Founder, Paisabazaar.com.
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