Immediate to medium-term financial planning

Over the years, there has been an uptick in Indian consumers’ spending habits. From Millennials to Gen Z, there's a growing desire for new experiences, a serious attitude toward hobbies, and an aspiration for a better life overall. 

This has led to a surge in the market of financial tools that help people decide how much to save, spend, or splurge. 

The markets were running high for the past 2 to 3 years from 2021 to the start of 2024, however, the last 18 to 20 months have made us take a hard look at the bull run with the geopolitical scenario. 

Trends that were once soaring are now being questioned, and the consumer sentiment has reached an all-time low. 

In this article, we will share how to manage & work on our short to medium-term goals, typically ranging from 1 to 5 years. This can range from planning a holiday to buying a vehicle. 

Type of Funds 

• A debt fund is a type of mutual fund that invests primarily in fixed-income instruments such as government securities (G-Secs), corporate bonds, treasury bills, commercial papers, certificates of deposit, etc.

  • Benefits: lower risk than equity but better returns than FDs, can be withdrawn faster than an FD, and is a good form of investment for a few months to 3-5 years. Works well for short-term investment. If held for 3+ years, you get indexation benefits on capital gains.

• Hybrid funds are mutual funds that invest in a mix of equity (stocks) and debt (bonds). Think of them as the best of both worlds – they aim to provide growth through equities and stability through debt.

  • Benefits - for those who are new to investing, have a medium risk appetite, are planning to buy a house in 5 years, or build a retirement corpus,  diversified across assets. Think of investing for 3 to 5+ years 

• Index funds are a type of mutual fund or ETF (Exchange Traded Fund) that mirrors a specific stock market index like the Nifty 50, Sensex, or Nifty Next 50. It passively tracks the index, meaning it invests in the same companies in the same proportion as the index.

  • Benefits - long-term market growth, results are better received in 5+ years, focused on building a corpus, ideal for SIPs & beginners

Tax Implications and Exit Charges

While investing for short - medium term goals, its crucial to factor in the tax implications and exit load to ensure the goal amount is fully met.

Debt Fund -> Capital Gains are taxable as per your income slab. Exit loads maybe applicable for short duration redemtpions of less than 6 months.

Hybrid Funds -> Upto 1.25L per year of capital gain is tax free. Most of the funds have an exit load of 1% if amount is redeemed within 1 year of investment.

Index Funds -> Upto 1.25L per year of capital gain is tax free. Most of the funds have no exit load.

Ready to plan your next goal? Use TrueX goal planner or connect with our advisor