Question

What mutual funds would you recommend for a 40 years old single man who is saving for his retirement? He hopes to retire at age 70. He is a moderate risk taker. He will definitely need these funds for living expense, after retirement. Be very specific in your recommendations.

Answer 1

There are mainly four types of mutual fund:

• Equity funds
• Fixed Income mutual funds (bonds)
• Money market funds (short term debt)
• Hybrid funds (equity and debt)

The person is 40 years old and is planing to save for retirement and he hopes to retire at the age of 70.

The time period is 30 years and he is moderate risk taker, that mean willing to take little risk for high returns and he wants safety of the funds also.

The appropriate type of mutual fund for the Investor would be hybrid funds, funds in which certain portion of his fund is invested in fixed income instrument and certain portion in risky assets like equities. Since the gap between his retirement need is 30 years, he should invest certain portion in equities. Equities in the short term are very volatile instruments but in the long term equity return beat all other investment. The appropriate fund allocation would be where a slight majority of the portfolio consist of fixed income Instrument and the rest in equity. Hybrid funds give the Investor the benefit of both debt and equity. Other types of mutual funds would not be suitable for the Investor given his risk perception.