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What are the best investment options for children’s future planning, keeping a time horizon of 10-12 years?
- Varun Verma
While making investment decisions, it is important to understand the risk one can take, the goal, and the investment’s horizon. Since the investment horizon is long (more than ten years) and it is for children’s future, you can have an aggressive risk profile. You can plan to build an equity-oriented portfolio with a healthy mix of funds from the Large & Mid Cap, Flexi Cap, Mid Cap and Small Cap category as equity as an asset class has the potential to deliver the best return in the long run. However, solution-oriented funds are available by various fund houses with a lock-in provision of 5 years. These funds have certain exposure in fixed income securities, which may dent the performance in the long run. So, building a pure equity-oriented portfolio in open-ended schemes is advisable. You can think of equally divided the investible corpus/monthly SIPs in HDFC Large & Mid Cap, Parag Parikh Flexi Cap, Kotak Emerging Equity Fund and Canara Robeco Small Cap Fund. This way your portfolio will be diversified across the category, geography and AMCs. However, if investment is made through a lump sum, it should be through the STP route in suggested schemes over 10-12 months.
Last year was great for NFOs, and we saw a lot of investment in it. Now, again a lot of NFOs are in line to be opened. Is it a good option to go for these NFOs or stick with existing funds for a long-term track record?
- Sarthak
An NFO occurs when a fund house issues units for the first time or raises new funds for a new theme. It is a common misconception among investors that investing in NFO will benefit them because they can purchase each unit of the newly launched MF scheme at its face value of ₹10. Regarding mutual funds, the NAV is only of academic interest. What matters is the market level at which you purchase the mutual fund, especially if it is an equity mutual fund.
When the Nifty is quoting at 15 times trailing P/E, buying an MF at a NAV of Rs. 40 in the secondary market is a good idea. However, Investing if the Nifty is quoting at a trailing P/E of 22, investing in a mutual fund NFO with a NAV of Rs.10 is a bad idea. Investing in any NFO can provide numerous benefits, including portfolio diversification through investment in new strategies and flexibility, to name a few.
It could have multiple benefits if you have done your homework well and know the core meaning of NFO and what benefits you can avail of them. However, it is not suggested for the first-time investor as it is important to consider various factors, i.e. reputation of the AMC, track record of the fund manager, the strength of the analyst team and knowledge of the market or economic cycle before investing in these schemes (NFO). So, such investors should invest in schemes with a long track record.
Queries were answered by Sanjiv Bajaj, joint chairman and MD, Bajaj Capital.
(Please send your queries and views at mintmoney@livemint.com)