Long term investment for my child

POSTED BY Prasad ON March 31, 2011 7:49 pm COMMENTS (11)

Hello,

Owing to a recent financial windfall, I am now left with close to Rs.1 lakh in hand. This amount, I’d like to completely invest in my newborn child’s future. So what would be the best option to do the same?

I actually do not have savings or investment in any other form, but starting from the new financial year, I’ll be putting at least 5k to 7k every month in some form of mutual funds (probably a SIP). This I say with confidence ‘coz the payment of one EMI is coming to an end this month, but I’ll continue to use the EMI amount as savings funds. I’d need your guidance for this also. Tax savings SIPs should be good enough, right? Or should I also think about some risk free investment options? I am 30 years old now. I do have a term insurance coverage for Rs.50,00,000, and also endowment policies with coverage of Rs.6,00,000.

Hope to get some useful replies and information here. Thanks in advance.

11 replies on this article “Long term investment for my child”

  1. moneysights.com says:

    Hi Prasad,

    What Ramesh & Bharat have advised is absolutely bang-on. If you are investing money for long-term of 8-10 years then deciding between lump-sum & monthly for the windfall gain of 1 lakh should be more of a function of your convenience rather than aiming for the perfection.

    If you have already have planned for your tax-saving investments then, a portfolio of 2-3 equity diversified funds should be the best option. However, if you haven’t planned then putting in tax-saving MFs should be again a better choice. Thanks for lock-in, it brings an utmost discipline + you get rid of the headache of planning your tax-saving in the beginning of the year itself.

    Fidelity Tax Advantage fund (http://goo.gl/NO1bV) & HDFC Tax Saver (http://goo.gl/a0UZx) would be good choices to make in tax-saving options, while Birla Sun Life Dividend Yield, HDFC Top 200, HDFC Equity & ICICI Prudential Discovery would be good options in non-tax set of Mutual Funds.

    Hope this helps.

    Santosh Navlani | moneysights.com

    1. Prasad says:

      That surely helps a lot.. Thanks for the explanation. As mentioned earlier, this amount of 1 lakh, I would be entirely using it in some non-tax-saving MF. I am starting SIPs with tax-saving MFs this month onwards. 🙂

  2. bharat shah says:

    yes, i concur with ramesh. i think, when we have money , it is better to put it in our choiced diversified mf one go, if for long term, unless market is in euphoria stage like 2007 end- 2008 stage. of course , timing market is difficult. i ,myself, now like to be always in the market, rather than timing the market.
    for stp, i have no particular scheme in mind.it should be chosen from long term consistent performer- may be one or 2 in no.
    if you like gold/silver, you may opt for it through regular installments, or at stretch.

  3. Ramesh says:

    Does it really matter if you had invested in equity 10 years ago, when the sensex was @ 4000 or 4400. (there is a difference of 10% in them). But down 10-15 years, that 10% difference does not make much of a difference.

    Same is the case right now. If you have a lot of money (1 lakh) as a lumpsum, you should “invest” it rather than trying to micromanage it and spending it. Two options for you imo,

    1. Invest in 2 separate equity diversified funds as lumpsum (50k each). done.
    2. Invest in a debt fund of a AMC and start a STP from it to an equity fund of the same AMC regularly (as mentioned by @bharat). Overall, to me, this looks like a little complicated thing. But still it gives you a time-diversification.

    Since, we dont know where the markets will be, so which way is going to be the better one, no one can say.

    1. Prasad says:

      @Ramesh: That was exactly my confusion too.. Does it really make that much of a difference if I’m looking at a long term investment? Personally, which one would you prefer among the two options you have mentioned?

      1. Ramesh says:

        First one, for its sheer convenience. Also, one should stop looking in a very short-term.

        the funds that i reco are Templeton India Equity Income / Reliance RSF / Quantum Long term equity. Any one / two.

        1. Prasad says:

          Okay.. I’ll check them out and decide. 🙂 Thanks for the help.

  4. bharat shah says:

    the usual way to invest in particular equity mf scheme of your choice through mip si to park your money in liquid (debt) scheme of the same amc of chosen equity mf scheme, and do sip for the period you want. in that way you money in liquid scheme would increase at rate of 5-7%, and there would not be any exit load for money switched to equity mf through sip.

    1. Prasad says:

      Hi Bharat,
      Is what you are saying, the same as a Systematic Transfer Plan? Can you please elaborate with an example, and maybe recommend any particular plan?

  5. Prasad says:

    Thanks for the reply Asif. However, I’m not sure if I have conveyed my query clearly. What I have right now is Rs.1 lakh in cash. I will also save at least 5k to 7k in addition starting from this month. This 5k, I am planning to invest in tax saving MFs. Is that okay?
    The 1 lakh cash, I would like to save it in bulk in some long term plan. I do not want to split it to small portions to invest over a period of time; and I’m sure you would agree that investing lumpsum in MFs is not wise. So, is there any other option to park this 1 lakh for long term with decent returns?

  6. Asif says:

    Tax saving MF would be good but since you are considering investment for your child timeline is approx 15 years & you can do SIP in equity diversified MF which will give you more return than tax saving MF.

    Make it pure equity investment and down the line 8-10 year onwards when you see it is giving a decent return you can switch it to safe investment.

    Also, since you already have 50L coverage, you may re-consider closing your endowment policies and use that premium in MF SIP investment or safe PPF investment ( tax + compounding benefit).

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