Ensuring Child's Future

I have one child for whom I want to invest. Which is the best investment category that can give me promising returns? I am 25 years old and my investment horizon is around 30 years. -Chirag Gheewala Given your long term horizon, you would be advised to invest in equity funds at present. There are two reasons why equities will be the most suitable asset-class for you. First, 30 years is a long enough time horizon, and if you keep investing in good diversified equity funds systematically, the chances of you incurring a loss will get substantially reduced. Second, equities have the potential to generate the kind of returns that will help you to accumulate sizeable amount of money to meet future needs of your child, like education. But there are few things that you must remember. Historically, equities have proved to be the best asset class over a long term horizon. At the same time, they tend to be the most volatile in the short term. Therefore, you should turn a deaf year to the ups and downs that the equity markets may witness over the period of time. Also, do not get carried away by a rally in the stock market so as to invest huge amounts at one go. As mentioned earlier, markets remain volatile and repeatedly pass through bear and bull phases. But it would be better if you stay away from greed to make quick bucks by investing large amounts at a time. Maintaining focus on your long-term goal will help you succeed. You must not be too casual to keep investing without reviewing your portfolio. Over a period of time, many things can happen which may require you to re-think the investment decisions you had taken earlier. There can be instances where the good looking funds become bad as a result of various factors, like change in the management style, or the investment objective etc. Therefore, you must review your portfolio intermittently to make sure that things are in place. Moreover, we think that a lock-in period of three years should not be a problem for you. Therefore, investing in tax-planning funds will also make a lot of sense in your case. ELSS funds resemble diversified equity funds in the way they invest, the only differences being that they come with a lock-in period of three years, and offer tax exemption under Sec 80C of the Income Tax, which makes a strong case for them. These funds have performed better than diversified equity funds, as the former have a longer term horizon, which suits you. Lastly, if you think that an all-equity portfolio will be too volatile for you, then you can consider adding a good balanced fund. However, we believe that equities should still dominate this portfolio right now. As you approach the time when you would be requiring funds, start increasing the debt portion of the portfolio, to safeguard against negative surprises that equity markets may throw up at the time of redemption.