For medium-term financial goals, typically 5-8 years away, experts suggest a diversified approach combining equity and debt mutual funds. Large-cap and flexi-cap funds are recommended for equity allocation due to their stability and flexibility. Diversification across asset classes is crucial to mitigate risk, ensuring that underperformance in one category can be offset by another. The closer a goal, the safer the investment should be, with debt funds advised for goals less than a year away.