I was blessed with a son this August. As is normal our child got gifted with some amount of cash as shagun on his welcome function. Generally what my family does is invest these amounts for new borns in a bank FD. What I wanted to do was invest some in PPF and the rest in an index fund such. I’ve been doing some reading online and am not able to form my mind. The time horizon is around 20 years. Simple calculation shows that if the money compounds quarterly @ 8.5% p.a. (PPF) then it turns into 5.37x times at the end of 20 years. But if it compounds annually at @ 10% p.a. then it turns into 6.73 times the principal. So I believe that I should split the money into three parts
- 30% in PPF (upto limit of Rs 1.5 lacs)
- 30% in FD
- 40% in Index fund
After some reading and some discussion in whatsapp groups I learnt that in respect of India index funds are not the best option when it comes to mutual funds for returns. But I’m happy with the return that Nifty has posted (from 100 points in '91 to 10-10.5K today) so I don’t want to be greedy and select some other fund (like small cap, mid cap) over index. I also don’t want to go for a cap specific or sector specific index. I would want to invest in an index like Nifty 500 or BSE 500. Kindly guide if this is the right thought. My other reason why I want to go for index fund is that it doesn’t require monitoring on my part and also the costs are low.
Kindly help me with throwing light over my thoughts and correcting me wherever I’m wrong.