I have a three-year old daughter. I want to start investing for her education (for 15-18 years). Over the last few months, mutual fund houses have launched child plans. In terms of cost and performance, how are these in comparison to those offered by insurance companies? Are there better options?
When investing for your daughter’s future, you must understand what each product offers you. Normally, a mutual fund child plan offers you a balanced fund, which is a mixture of equity and fixed-income instruments. They may have more conservative or aggressive plans, depending on how high the equity component is, as a percentage of the overall corpus. On the other hand, insurance companies offer conventional as well as unit-linked child plans. Conventional plans do not invest in equities, whereas unit-linked plans can invest in equities and/or fixed-income instruments. Moreover, insurance plans also provide risk cover to the parent. Since your time horizon is quite long, you could look at investing in a mutual fund or a unit-linked insurance plan, which has a higher exposure to equities. While such investments may be volatile in the interim, they are expected to deliver superior returns over fixed-income instruments in the long term.
For the past few days, the markets have been witnessing a broad-based rally, not restricted just to the Sensex stocks. Should I invest in mid- and small-cap stocks?
Many fundamentally sound stocks in the small and mid-cap space were heavily beaten in the recent past and are now available at attractive valuations. One could look at a some such stocks to invest. Even as small and mid-cap stocks are generally more volatile than large cap ones, some of them provide an opportunity to outperform the markets at these levels, in case we get to see a broad-based rally, going forward.
My holding in gold exchange-traded funds has risen to Rs 8 lakh over the past two years . With gold prices scaling life-time highs, is it the right time to exit this investment? I have no immediate need for funds, though.
While gold prices have rallied a lot, they are showing no signs of abatement. Since you do not need the funds now, there are various ways you could handle your investment in gold. First, you could ride the rally as long as it lasts, and exit once gold prices start falling. However, the timing is quite difficult to ascertain for an investor. The other option is to book profits now and move all your money from gold to cash or other asset classes. However, this way, you may miss out on any further rally in gold prices. Therefore, the best way ahead would be to constantly balance your portfolio. This could be done by selling gold equivalent to the profit you are making, while keeping the original investment intact. Re-balancing can be done at regular intervals or every time the investment increases by a certain percentage. This is a scientific way to not only keep booking profits, but also staying invested in an asset class that is performing well.
The writer is director, Touchstone Wealth.Send your queries to yourmoney@bsmail.in