An advisory firm has two clients with Rs 40 lakh each: a 29-year-old saving for retirement and a 52-year-old who needs Rs 25 lakh for a daughter's wedding in three years. Using one menu of five funds, build both portfolios and explain why they differ.

Priya goes about 79% into equity; Mohan goes about 25%, because Rs 21 lakh of his money has a date. Both start with Rs 3 lakh in the liquid fund as an emergency reserve. Priya puts Rs 20 lakh in the index fund, Rs 11.5 lakh in the flexi cap fund and Rs 5.5 lakh in short duration debt. Mohan puts Rs 21 lakh in the three-year target maturity fund, which grows to about Rs 25.7 lakh at the assumed yield, and only Rs 10 lakh in equity.

Two families packing for a trip take different bags for a weekend and for a year abroad, though they shop at the same store. The horizon of each rupee decides the risk it can carry, so the first job is to write down when each client will need money, and only then pick funds from the menu. Priya needs nothing for thirty years except an emergency reserve. Mohan needs Rs 25 lakh on a known date in three years, plus a reserve, and the rest can wait for his retirement at 60. Same amount, same menu, two different sets of dates.

Work backwards from the bill. A target maturity fundA debt fund that holds bonds maturing around a fixed date and winds up then, so an investor who stays to maturity gets close to the yield at purchase, whatever rates do in between. maturing in three years at an assumed 7% turns Rs 20.4 lakh into Rs 25 lakh. Round up to Rs 21 lakh, which grows to about Rs 25.7 lakh, because weddings cost more than the first estimate and the yield is an assumption, not a promise. Say the limit: the fund's bonds carry some credit risk, and the yield is only locked in if he stays to maturity. That is still far closer to certain than equity three years out.

Test it with a fall. A 30% drop costs Priya about Rs 9.4 lakh on paper. With thirty years to retirement and a salary that keeps adding, a fall in year two is a discount on everything she buys after it, not a loss she has to realise. The same 30% fall costs Mohan about Rs 3.0 lakh on his equity sleeve, which is retirement money he will not touch for eight years, while the wedding money is untouched. For scale, Rs 40 lakh compounding at an assumed 10% for thirty years is about Rs 7.0 crore; that is the prize Priya's horizon buys her, and it is why the reserve exists, so a job loss never forces her to sell equity in a fall.

In one sentence each, in their own terms. To Priya: your money has no date, so it can ride out falls, and the only money kept safe is the six months that stops a bad year forcing a sale. To Mohan: Rs 25 lakh has a date, so it goes where the date is matched; everything else is retirement money and gets a smaller version of Priya's plan. If a client asks why the other one got more equity, the answer is never age by itself; it is that nothing in the younger portfolio has to be paid for on a known day. Tax on debt and equity funds differs and changes; confirm the current rules before fixing the mix.