Lifestage Planning with Mutual Funds

Mutual funds can be good life stage financial planning tools.

Assume my age is 25 years.

I can put 25% of my investment corpus into debt mutual funds.

The remaining ie 100% - 25% = 75% can be put in equities.

We can do a SWITCH transaction to switch the 1% of amount periodically to the debt fund as we grow older.

This re-balancing act can be done periodically, say, every 6 months or 1-year.

This methods works out for those who want a simple investment life without a diversified portfolio.

However, most investors cannot resist from adding more than 2 schemes.

The premise of this method is that equities over a long period of time will give far better returns than other traditional asset classes.

Perhaps, we can start this investing method for our kids because they start with single digit age.

Or when are planning to build a retirement corpus.

The re-balancing (switching from equity to debt) is necessary so that by the time we retire, we do not worry about stock market fluctuations.

Debt funds are more safer than equity funds.

So as we get closer to retirement, our retirement corpus becomes more and more secure and clearer.

Also, when we are switching from equity scheme to debt scheme, we are in a way, doing profit booking periodically.

All switches from equities after 1-year are tax free.

In fact, one can start the life stage method of investing right from Day 1 he becomes employed.

Even 30s or earlier if possible is not a late time to start.

By the time we retire, we will automatically be having substantial portion in debt funds.

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