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An Investment Gift

A great-grandfather looks to make the youngest family member financially free

My great-grandson will be of one year soon. I want to invest Rs 1 lakh in his name. Tell me how to invest so that, after 20 years, he gets a substantial amount. It has to be risk-free.

An instrument that can give guaranteed and good returns continuously for 20 years, that is also risk free, would be very hard to find. If you are willing to tolerate a little risk then you should consider the option of mutual funds.

If you intend to invest for 20 years, in most equity investments, growth would be substantial. The market may fall during this long period, but in the end the growth registered will be substantial. Also, one thing that you should do is to make sure that you don’t invest one lakh in a lump-sum. Instead invest in 4 parts of 25,000 each at a gap of one – two months. Then it should grow to a substantial amount in the same period compared to NSC or a bank fixed deposit.

Are there mutual funds available for investments in gold and other commodities?

Typically, a mutual fund gives an investor diversification. But when you buy a gold fund, it does not get you any diversification, rather than that it gets you invested in gold in the form of a paper instead of a physical form.

Also, there are two other funds in India, which not only buy precious metals, including gold, but they also own gold mining companies. They have proved to be a little more volatile than gold prices. But if the outlook for gold is higher then, because they are key beneficiaries, they tend to benefit. Likewise, the reverse is as true. In that situation, these funds tend to fall much more sharply.

Gold ETFs give you ownership of gold directly in the form of a paper. AIG Gold Fund and DSP BlackRock Gold Fund invest only in global gold mining companies. We don’t have any other funds which invest in any other commodity directly.

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