If you have more than 10 TO 12 years on hand, consider using SIP in aggressive equity funds. Otherwise stick to debt oriented funds and balanced funds.
Children’s Education
The rising cost of education has become one of the biggest nightmares for parents. Today, the cost of nursery education for a toddler can be in the range of INR 60,000 to INR 3 Lakh annually. In such a scenario, the parents are looking at a college spend that is beyond their imagination. Considering that education costs are increasing at more than 20% per annum, parents need to invest into instruments which will yield the expected returns. Equities are the best option available as they are known to create wealth in the long term. However, given the volatile nature of this asset class, investors would be better off participating in the markets via the mutual funds route. The biggest advantages of investing into mutual funds are that they are managed by professionals who have the expertise in cherry picking stocks and they are also highly diversified across stocks and sectors.
These advantages should be viewed along with the caveat that mutual funds are also subject to volatility.
In the mutual funds space, parents can either create a portfolio exclusively for the purpose of funding their children’s education or specifically invest into children’s plans offered by funds houses.
While creating a portfolio for their children, parents should follow these guidelines:
• Open a minor account
• Make use of the SIP route for all investments
• If the college enrollment of the child is less than 5 years away, the portfolio should consist of debt and balanced funds
• If the college education is more than 5 years away, an aggressive portfolio consisting of equity funds and one balanced fund will be ideal. A balanced fund is suggested in this portfolio so as to get a flavor of fixed income
• Review the portfolio on a yearly basis. However, if any of the funds have been underperforming for a year, there is no need to press the panic button. If the underperformance continues for 3 years, then the SIP in the fund can be terminated
• Two years before the college education, the entire surplus accumulated in the equity and balanced funds should be moved into debt funds
• Finally, every year there should be an increase in the amount invested via the SIP route. If the portfolio has 9 to 10 good funds, the increased amount can be allocated among the existing funds.
Below table is a portfolio which has been designed for my son’s education in a minor account. The first investment was started in 2013 and as there are more than 10 years for his college education, an aggressive portfolio has been designed for him.
While creating a portfolio for their children, parents should follow these guidelines:
• Open a minor account
• Make use of the SIP route for all investments
• If the college enrollment of the child is less than 5 years away, the portfolio should consist of debt and balanced funds
• If the college education is more than 5 years away, an aggressive portfolio consisting of equity funds and one balanced fund will be ideal. A balanced fund is suggested in this portfolio so as to get a flavor of fixed income
• Review the portfolio on a yearly basis. However, if any of the funds have been underperforming for a year, there is no need to press the panic button. If the underperformance continues for 3 years, then the SIP in the fund can be terminated
• Two years before the college education, the entire surplus accumulated in the equity and balanced funds should be moved into debt funds
• Finally, every year there should be an increase in the amount invested via the SIP route. If the portfolio has 9 to 10 good funds, the increased amount can be allocated among the existing funds.
Below table is a portfolio which has been designed for my son’s education in a minor account. The first investment was started in 2013 and as there are more than 10 years for his college education, an aggressive portfolio has been designed for him.
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