Should my 22-year-old daughter invest in an NFO or existing mutual fund for a 5-year SIP?

Ans: Investing Rs. 10,000 monthly in mutual funds for 5 years is a wise decision. It can help achieve financial goals and build wealth. However, setting realistic expectations is essential. A target of Rs. 50 lakhs to Rs. 1 crore in 5 years with this SIP may not be feasible. Let’s evaluate the options and provide a tailored plan.

NFOs vs Existing Mutual Fund Schemes
New Fund Offers (NFOs): These are newly launched funds without a track record. They are riskier compared to existing funds.

Existing Funds: These have an established performance history. You can evaluate their returns, risk, and consistency.

Recommendation: Stick to existing funds with a proven track record. Avoid NFOs for now.

Active Funds over Index Funds
Disadvantages of Index Funds: Index funds passively replicate market indices. They lack flexibility to adapt to market changes.

Benefits of Active Funds: Actively managed funds aim to outperform the market. Fund managers select stocks based on research and potential.

Recommendation: Invest in actively managed funds through an MFD and Certified Financial Planner for guided investments.

Suggested Mutual Fund Categories
Equity-Oriented Funds
Large-Cap Funds: These invest in established companies with stable growth. They offer moderate risk and reasonable returns.

Mid-Cap Funds: These focus on mid-sized companies with high growth potential. They carry moderate to high risk.

Flexi-Cap Funds: These invest across all market caps, offering diversification and growth potential.

Hybrid Funds
Aggressive Hybrid Funds: These invest in both equity and debt. They provide balanced risk and returns.

Equity-Oriented Balanced Funds: These aim for growth with lower volatility by combining equity and debt.

Setting Realistic Expectations
Wealth Accumulation: Investing Rs. 10,000 monthly for 5 years may grow to Rs. 8–10 lakhs.

Long-Term Vision: To achieve Rs. 50 lakhs to Rs. 1 crore, increase the investment horizon or SIP amount.

Investment Discipline: Continue SIPs consistently and avoid frequent withdrawals.

Tax Implications
Equity Funds: Gains above Rs. 1.25 lakh annually are taxed at 12.5%.

Debt Components in Hybrid Funds: Gains are taxed as per the investor’s income tax slab.

Plan Withdrawals Wisely: Minimise tax liabilities by spreading redemptions over financial years.

Risk Management
Emergency Fund: Ensure 6–12 months of expenses are kept in liquid assets.

Diversification: Invest in multiple funds across categories to spread risk.

Periodic Reviews: Monitor the portfolio semi-annually to align it with market changes.

Final Insights
A disciplined approach and realistic expectations are key to achieving financial goals. Invest in actively managed funds with a proven track record. Avoid NFOs for now and focus on diversification and consistency.

Guide your daughter to start her investment journey with proper planning and monitoring. Encourage long-term financial discipline for sustainable wealth creation.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in
https://www.youtube.com/@HolisticInvestment