I want to do an SIP of Rs 3,000 per month for my new-born child. Would you recommend a market-based insurance policy or direct investments in mutual funds and stocks? I also checked two mutual funds from JM Mutual Fund and UTI Mutual Fund. I picked these simply because two very renowned fund managers joined these fund houses.
-Kamal Bhatt
You have the right strategy in place where saving for your child is concerned: starting early and saving periodically. The issue is where you should deploy your funds. The biggest hindrance against unit linked insurance plans (ULIPs) is the high commission costs associated with such packaged products. It is for this reason we suggest you separate your investment and insurance needs. Take a term policy and invest separately in mutual funds. The overall cost is much lower. Also, investing through mutual funds gives you greater flexibility in managing your portfolio. If the fund performance slackens, you have the the option of moving your money elsewhere without incurring any surrender charges or discontinuing your insurance cover.
As regards the process of selecting a fund, you need to look beyond the fund manager managing your money. Consider the objective, investment style and risk profile of the fund. You need to align a fund's objective with your overall portfolio's objective. For starters, you could look at growth oriented schemes in the large-cap category. Select two core holdings in which can infuse money periodically. For easier fund selection you can pick five- or four-star rated diversified equity funds.
This article was originally published on January 10, 2008.
Ask Value Research 
New episodes every Friday 
New Process Alert 
Seems like you've uploaded a wrong QR code. Please upload the QR code downloaded from MF Central platform.
