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What is special about retirement fund and children's fund?

Dhirendra Kumar says why there's nothing special about these two new fund categories


Sebi has carved out two fund categories, one for retirement and the other for children. What's special about them?
-Venkat

The only special thing about them is that they are being called one. These funds are primarily meant for the naive investors. When investors invest for such kind of goals, they look at these investments in a very sacrosanct way. They will not fiddle with it.

Of course, these are very simple funds. They are conservative hybrid funds or aggressive hybrid funds. There is nothing special besides the tax-advantage and lock-in period mandated by SEBI which has been enforced for these two goals.

If you are a little thoughtful, you should better be choosing the best funds for these goals, depending on the timeframe for your investment. Assuming that you are 30 years old and your retirement is 30 years away from now then you should be into as much equity as possible. You should be in fixed income only to the extent of needing money for emergencies or for spending over the next 2-3 years.

And as you get closer to your goal you should turn conservative. My sense is that, if somebody has been a lifetime investor in equity, he will not have to turn conservative. Because, in twenty to thirty years time, you will learn that equity is volatile but volatility is not risk, it's just wild. You should tame that volatility with your asset allocation. You should rebalance it periodically. You should have a small fixed income allocation in your portfolio when you have lot of time. Likewise, for your children's education, if you are investing for eighteen years, be as much into equity as possible. As your children gets ready to get into college, be reasonably into fixed income for their first year college fee. While he is in first year, prepare your redemptions for the second year fee. So plan accordingly. Any good fund can be your retirement fund or children's education fund.

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