Equity is the best asset class to create wealth for your kin over a long-term period…
31-Mar-2011 •Research Desk
I am planning to set a corpus of Rs 10 lakh for my son when he attains the age of 16. He is three months old now. How do I plan? What is the best form of savings and how?
You have 15 years to go for your financial goal to build a corpus for your 3-month old son and should invest in equity mutual funds as equity is the one asset class that appreciates over the long-term and helps in wealth creation. If you a reluctant to plunge into equity investing, which is understandable for a first time investor, we suggest you start with a balanced fund. Balanced funds are those that have 65-70 per cent equity exposure with the rest in debt.
You need to experience investing in these funds for the next six months to experience mutual fund investing and also get the necessary confidence to further invest. You can start with investments in HDFC Prudence or Reliance Regular Savings Balanced fund. Once you have tracked this investment, you can consider investing additional amounts into a combination of multi-cap funds such as HDFC Equity or Quantum Long Term Equity and funds that have a large and mid-cap exposure such as HDFC Top 200 or Birla Sun Life Frontline Equity. This combination will help you achieve good returns on your investment in this portfolio.
By investing Rs 2,980 a month earning an annualised 12 per cent return or Rs 2,220 earning 15 per cent will achieve your goal and is possible through a combination of funds suggested. However, make sure to track the performance of the funds you have invested in to check if it is progressing towards achieving your financial goal.