Should I opt for a child plan or invest in a large cap fund for my daughters higher education? – Your Queries

A large part of your equity exposure should be allocated to pure large-cap funds, and the rest to mid-cap and small-cap funds.

I want to invest every month for my daughter’s higher education. Should I opt for a child plan or invest in a large cap fund?
—Mohit Sharma

Funds categorised as ‘children’s funds’ are subject to a lock-in of either five years or till the child attains 18 years, whichever is earlier. Post attaining majority, all transactions by the parent/ guardian are frozen and the child is required to submit required documents necessary to enable him/her to operate the account. Children’s funds invest in a mix of equity and debt instruments with an objective of either wealth or income generation. Depending upon the objective, their allocation is tilted towards equity or fixed-income.

Given the lock-in period with an aim to encourage investors to remain invested, these funds do not offer any benefit to investors relative to other categories. Hence, it is advisable to consider other pure-play equity and debt funds to have better control over the desired asset allocation and select funds with a long-term track record. Ideally, an asset allocation-based approach (mix of equity and debt) should be followed for investing towards one’s goal. Longer the investment horizon and higher the risk appetite, higher can be the allocation to equities, which despite being more volatile is the most favoured asset class for wealth generation over the long term.

A large part of your equity exposure should be allocated to pure large-cap funds, and the rest to mid-cap and small-cap funds. You should also consider allocating some exposure to international equities. The fixed-income exposure can be into accrual funds maintaining a high credit quality portfolio such as banking PSU funds, corporate bond Funds, ST Income funds, and medium-to-long term funds.

Is there any lock-in period for gold ETF? I am making losses as I bought a lot of gold ETF last year when the prices were rising, but are falling now.
—Arvind Deshmukh

No, gold ETFs are not subject to any lock-in. Gold ETFs like other securities are traded in the secondary market and investors can buy and sell ETF units in the secondary market at any point in time, subject to available liquidity.From an asset-allocation standpoint, it is advisable to have some allocation to gold (5% to 10%) for diversification benefits.

The writer is director, Investment Advisory, Morningstar Investment Adviser (India). Send your queries to fepersonalfinance@expressindia.com