If your financial goals are in between 1.5 years to 5 years then these Goal can be described as Medium term financial goal.

Broadly speaking, your investment choice should be guided by two things: investment horizon and risk appetite. Always remember, short to medium-term goals should be funded by using safe or relatively-safer debt investments. This is because you cannot afford to lose money when you do not have much time in hand.

Medium -Term Investment Options

Bank deposits: They are the safest and offer assured returns. However, the trouble with fixed deposits is that the interest is taxed and there is penalty for premature withdrawal.

Company deposits: They offer slightly higher returns, but they are also a little more risky. Always stick to higher-rated deposits. Do not compromise on ratings for higher returns. Also, never put your entire investments in a single company spread your investment across a few companies.

Debt Mutual Fund Schemes: The Debt Mutual funds may offer slightly superior returns than FD/saving account return and have taxation advantage if investment is held for more than 3 years. However, use them carefully. It is extremely important that your investment horizon should match with the fund. For example, use liquid funds to park money for a few weeks or months. Ultra short-term funds are suitable to park money for a few months to a year. Short-term funds are ideal to park money for two to three years.

Conservative hybrid Schemes: Many investors want to invest in stocks, but they do not go ahead because they don’t have the required risk appetite to invest in a pure equity mutual fund scheme. Conservative hybrid funds are best suited for these investors. These schemes invest 75-90 per cent of the corpus in debt instruments and 10-25 per cent of the corpus in equity or stocks. The small equity exposure would help these schemes to deliver marginally higher returns than pure debt schemes. These funds are generally suitable for more than 3 years.

Dynamic Asset Allocation Funds: Dynamic asset allocation funds can invest in a mix of debt and equity. They increase/decrease their allocation to equities and debt depending on their view of the stock markets. Typically when valuations are low, they increase equity in the portfolio, and when they are high, they reduce it. The equity component of the portfolio can go up to 100% or even 0% and would vary depending on the method of calculation used by the fund house. A fund house is free to use its own methodology for calculation this. A fund could use the Nifty PE, price-to-book value or any other in-house developed proprietary models to allocate. Dynamic allocation funds help in automatic rebalancing of funds and is hence recommended for first time equity investors, with a low risk appetite.

Funds Masters Recommendations for Medium Term Financial Planning

1. Safety of invested capital is more important than appreciation.
2. Do not invest in pure Equity Mutual funds for your medium term goals.
3. Do not invest in long term debt Mutual Funds for medium term Goals as these funds are sensitive to interest rates and not suitable for medium term goals.
4. For money requirement up to 18 months to 36 months Short term debt funds are suitable.
5. For money requirement from 36 months to 60 months, Dynamic asset allocation funds, Conservative Hybrid funds and Dynamic bond funds are suitable.