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I want to invest ₹20,000 a month for up to 20 years. Where should I invest?

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I am 25 years old and plan to invest 20,000 per month from my salary for 15-20 years. Please suggest schemes.

-Name withheld on request

As you have an investment horizon of 15-20 years, I suggest you invest your entire investible surplus in equity mutual funds as equities as an asset class beats fixed income instruments by a wide margin over the long term.

However, do note that before investing, you should first accumulate an emergency fund, which is big enough to meet your unavoidable monthly expenses like utility bills, daily expenses, insurance premiums, EMIs, etc for at least 6 months, if you have not already done so.

Without an emergency fund in place, any unforeseen financial exigency can force you to redeem your equity investments and possibly incur capital losses during a market correction. This emergency fund should be parked in high yield savings accounts or fixed deposits to ensure the highest possible liquidity and capital protection. Also, ensure to park your investments earmarked for short-term financial goals in high-yield fixed deposits or short-duration debt funds as equities in the short-term can be very volatile.

Once you have accumulated your emergency fund, start investing for your short-term and long-term financial goals through SIPs. Invest in the direct plans of any of these short-duration funds — ICICI Prudential Short Term Fund and HDFC Short Term Debt Fund — for your short term financial goals. Spread the rest of your monthly investible surpluses among the large-cap index funds, flexi/‘large & mid’ cap and small-cap funds in the ratio of 40:40:20 for your long term financial goals. For this purpose, you can consider direct plans of these funds — Tata Index Sensex Fund or HDFC Index Sensex Fund; Parag Parikh Flexi Cap Fund or Mirae Asset Emerging Bluechip Fund; and Axis Small Cap Fund or Kotak Small Cap Fund.

If you have a taxable income, invest in the direct plans of these ELSS funds — Mirae Asset Tax Saver and/or Axis Long Term Equity Fund — through SIPs to reduce your tax liability by up to 1.5 lakh under Section 80C.

Naveen Kukreja is CEO and Co-founder, Paisabazaar.com. Queries and views at [email protected]

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