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Investing for a 25-year period must also entail equity exposure

My grandson will turn one year in October and I want to make a risk free investment for him for Rs 25,000 annually for 25 years. Which investment should I opt for?

There is a conflict in principle about what you are saying. If you have to invest for 25 years, there is no fixed deposit for that. But if you want a risk-free return, then one can opt for NSC, bank deposits or government bonds. Other than that, if you are looking at 25 years of investment, taking a little bit of risk will bring no harm. If one invests in a measured way, equity can be profitable rather than loss-making. Opt for an allocation in which 20-30 per cent of the total amount that you are investing goes into equity. Otherwise, I don’t think the increase in wealth in the coming years would be able to beat inflation. The purchasing power of today’s Rs 25,000 may not be more in the coming 25 years. But, risk is always there in equity in the short term.

For such a long-term investment, there are certain rules that one should follow to gain maximum benefits. One of them is not to invest all the money in one go. At the same time one should invest continuously and on a long-term basis and one should also not be speculative. And lastly, even if the markets go downhill, keep the inflow of investment steady.

For the last 13 months I have been invested in two mutual funds namely, Reliance Regular Savings Funds and SBI Magnum Contra Fund. The position as of now is that I have gained Rs 6,000. I need the money now. Can I withdraw the profit? Secondly, out of this I want to save and invest Rs 500. Where do I invest it?

Generally, it has been seen that one does not bring out money from equity fund investments because it helps in the accumulation process in the long-term. Recently, one had seen markets taking a downhill trend and investment value too decreased. You can redeem, if you so desire, as it is an open-end fund and within three days the money would be given to you. And as for your second question, if you want to invest Rs 500, then both these funds are good and you can invest in any one of them.

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