Two ELSS are sufficient

I want to start a systematic investment plan (SIP) of Rs 3,000 each month for my new-born child. My insurance agent is pitching a Ulip. Your suggestion?

- Rajeev Gupta

Ulips are a mix of insurance and investments that do justice to neither. We suggest you ask your agent to stop bothering you. Investing through mutual funds gives you greater flexibility in managing your portfolio. And, if investing for your child’s future, you are looking at goals such as education which are easily another 15-18 years to go. For such a long, investing horizon, invest in equity mutual funds, especially in a large cap fund. Going forward, invest in a mid-cap fund every time your child gets a gift or you have a surplus to invest for the child’s future needs.

I have money that will mature from my fixed deposits next month. Is it a good time to invest in mutual funds?

- Ragini Naidu

Unlike fixed deposits that are risk-free in nature, investing in MFs comes with its share of risk. You should be aware of this before investing in MFs. You appear to be a first-time fund investor. If so, we would rather you invest in a systematic manner and in a balanced fund to begin with. This way, over the next six months, you can experience the way MF investing works and then look at doing so in other types of funds.

I am looking at ELSS funds and am unable to make up my mind to invest in one ore more ELSS this year. What is the ideal number of ELSS that one should be invested in?

- Saptarshi Biswas

Investing in tax planning funds is to avail of Section 80C benefits and these come with a three-year lock-in. You should select from Fidelity Tax Advantage, Religare Tax Plan and DSPBR Tax Saver, three funds that are highly rated. Depending on the quantity of your investments, you may consider investing in not more than two of these, as their objective is the same.

I want to know about index funds and want to invest in these, especially in Nifty Banking BeES and Nifty Junior BeEs, both listed on Nifty. How do I buy them and whom should I contact?

- Kalpesh Patel

An index fund is an equity fund which tracks a particular index, like the BSE Sensex or the Nifty. Such a fund holds the same stocks as the underlying index and in the same proportion as in the index. The investment objective is to match the index return over a period of time.

The funds you mention are two of the oldest exchange-traded funds (ETFs) from Benchmark AMC. These funds are simply index funds that, unlike normal index funds, can be bought and sold at intra-day prices through a trading day. In this respect, they are more like shares than mutual funds. ETFs, since they need to be transacted upon through the day, are bought and sold through stockbrokers (using a demat account), just like shares. Initially, to invest in these you need to open a demat account with a broker and then buy the units of the fund like any other share.

I have a small trading business, wherein I face the challenge of retaining large cash for short durations of a week to a month. Can you suggest any mutual funds wherein I can park this with low risk?

- Harpreet Singh

There are funds that serve your purpose. Short-term and ultra-short term debt plans are for you. The principal objective of a cash fund is to preserve principal while also providing high liquidity. Returns are a secondary objective. They are suitable investment avenues for parking short-term money for less than a month or two. However, these funds are not risk-free.

Value Research