Investing with a pre-determined goal in mind helps investors choose the right kind of investment avenues besides systematically saving over the given time-frame.
Fidelity India Children's Plan, is an open-ended mutual fund scheme which, through different asset allocation patterns, allows investors to invest towards a set goal. The plan has three different funds in which to invest in – Education Fund, Marriage Fund and Savings Fund.
Investments in the schemes are allowed only on behalf of a minor by parents and a few others.
Balanced style
The Education Fund has a mandate to invest up to 70 per cent of its portfolio in equity and the rest in debt instruments; the strategy being similar to a balanced fund. It would be interesting to take note of the kinds of returns equity-oriented balanced funds have managed in the past.
Some of the best performing funds such as HDFC Prudence, DSPBR Balanced and Birla Sun Life 95 have delivered compounded annual returns in the range of 18-27 per cent over a 10-year period. Over a five-year time-frame the returns hover around the 18-20 per cent levels. Equity-oriented balanced funds as a category, have delivered around 13 per cent compounded annual return over a five-year horizon.
Investments in balanced funds through the SIP (systematic investment plan) mode too would have delivered impressive returns, although a few percentage points less than the lump-sum returns mentioned above over a 10-year period.
Overall, while balanced funds have lagged market returns over short time-frames of, say, six months, their long-term track record has been impressive.
Asset-allocation
The second product – Marriage Fund has a mandate that allows it to invest 70 per cent in equity, 20 per cent in gold ETFs (exchange traded funds) and 10 per cent in debt instruments.
With gold being an important ingredient in Indian marriages, the fund seeks to provide a hedge against rising gold prices. In rupee terms, gold has delivered a compounded annual return of nearly 22 per cent over the last five years.
The Savings Fund has a mandate to invest its entire portfolio in debt. Switching between goals is allowed and investors can also consider moving the proceeds to the Savings Fund, once their return expectations are met.
A higher equity portion in the first two plans increases the risk profile, with the second also having to contend with volatility in gold prices, which can be considerable.
Long-term wealth
Equity-oriented balanced funds have turned out to be good options for investors to build long-term wealth even while protecting their portfolio from wild market swings.
Fidelity's Children's Plan may see stability in assets managed, as the fund has a relatively steep exit load (a possible deterrent to redemption) in the initial years in the case of its Education and Marriage funds.
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