4-6 years is considered medium-term in savings and investment decisions and hence capital appreciation should be your objective here. Corporate bond funds and hybrid funds are best suited for capital appreciation as they are less volatile compared to equity funds which are ideal for wealth creation over long-term. Corporate bond funds invest in high quality bonds with 3-5 years average maturity, becoming less sensitive to interest rate changes. Hybrid funds invest predominantly in debt with some equity exposure thus providing a safer investment option with potential for capital appreciation.
While evaluating funds for medium-term investments, look beyond the recent 3-5 years returns for the fund’s long-term performance. See if it has been a consistent performer through all phases of a market cycle. Most funds will perform well during a secular bull run i.e. when markets are trending upwards, but a fund giving superior return during market downturn will exhibit consistent returns over time. Since you want to invest for 3-5 years and if the market happens to be in a bearish mood during this time, you would benefit from investing in the consistent performers. Choose a fund from a trusted fund house with good pedigree or seek help from an investment adviser to choose the right fund.