Please advise on the best investment to make for a 2-year-old child, to build a corpus of ₹10 million in 20 years. The investment will be done by the child's father and should be tax efficient.
- CMP Sinha
You have 20 long years to reach your goal and you can achieve it easily. A rough calculation shows that ₹10,100 per month invested over 20 years at a 12 per cent rate of return would lead you to your goal quite comfortably. If you prefer low volatility in returns, you can invest in good balanced funds such as HDFC Prudence, HDFC Balanced and Franklin Templeton Balanced Fund. Alternatively you can go in for good multicap funds such as ICICI Prudential Dynamic Fund, Franklin Prima Plus or Quantum Long Term Equity. You may also use the Fund Selector tool on Value Research Online to make your choice. Start booking profits when you are just 2 to 3 years away from your goal by switching to debt fund in phases.
As far as tax efficiency is concerned, if you redeem equity funds or balanced funds after a period of one year from the date of investment, you will have to pay no long term capital gains tax. We hope you have factored in inflation while setting the goal amount at ₹10 million. If not, recalculate the total amount and increase your monthly investments accordingly. The table below shows how much you need to put in as monthly investment to accumulate a sum of one crore after 20 years at various rates of return.
| Annual Rate of Returny | Monthly Investments |
| 0.1 | 13100 |
| 0.12 | 10000 |
| 0.15 | 6600 |
This article was originally published on July 22, 2014.
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