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Financial Planning

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Effective Strategies To Build An Education Corpus

Previously we have learned why we should start planning early for our children's education. It is important to build a large corpus of funds that will help meet all the costs related to children's education. So, to build a large corpus, we have stated a few effective strategies that will surely help. 

Following are the strategies you can use to build a corpus for your children’s corpus -

I. Ensure yourself first. 

Yes, you heard us right. As a parent, you need to shield yourself before you start investing for your child. 

Ensure you have adequate health and life insurance coverage, so that your family’s needs are not compromised in your absence. 

In case you don’t have one, you should consider taking one immediately.

Those who have already bought insurance, ensure you are covered adequately. Less insurance is akin to no insurance.

Earlier, the trend was that a policy was taken in a child’s name, which was a simple money-back plan.

Now, parents take a term cover in their name, which would be replaced if there is any loss of income due to the untimely death of any of the earning parents.

Therefore, this has the twin benefits of investment and protection.

You may use insurance calculators on various websites to find out your insurance needs or can take professional help from a financial planner.

II. Open and maintain a separate “savings’ bank account” for your child’s investments and other short-term requirements.

With so many goals and different investments made to reach each one of them, it's easy for things to get jumbled.

Therefore, it is important to keep your child's investments in a separate account even if you are investing in the same mutual fund scheme or investment, for another goal.

This way, you won't accidentally end up using your kid's investments. Tracking your kid's corpus becomes easier by - 

  • Projecting the corpus required in the future; and
  • Having a unique plan in place for each objective and allocate resources accordingly.

Projecting for the long-term is never accurate - your child might end up doing a course requiring less/more money than expected.

Also, its investment returns could be different from the ones assumed, or parents might not regularly invest the required investment amount every year. 

Therefore, it is better to estimate and start investing adequately early on.

III. Asset Allocation

You may choose from a basket of products to build your child’s education corpus - these include both assured return schemes and market-linked instruments. 

However, your risk appetite and investment objective should ideally dictate the investments made by you. You have to also consider the time horizon. 

The right asset allocation will ensure that your funds enjoy the maximum compounding benefits.

Following is the list of assets (listed priority wise) one can choose from: 

1. Mutual Funds;

i. Equity Index funds; 
ii. Exchange Traded Funds (ETFs);
iii. Equity-linked Saving Schemes (ELSS); and 
iv. Large-cap Equity Diversified Mutual funds.

2. Shares and Stocks; 

If you are a risk taker, you may start-off by investing in blue-chip, FMCG and pharmaceutical stocks. 

In case you are new to the stock market (or you do not have exposure in this area), you are better off investing through mutual funds.

These are better options as they will offer you better diversification and expertise. 

Whether you are an old or new investor, you should buy stocks only after thorough research. 

3. Debt Investments;

i. Post Office Savings Schemes; and
ii. Bank term deposits.

4. Other Investments; and

i. Gold ETFs; and 
ii. Real estate.

5. Insurance.

An ideal portfolio would comprise instruments from all the above categories in varying proportions - a judicious mix of debt and equity so that you have both safety and returns. 

Nowadays, some fund houses offer dedicated child plans as well (children’s ULIPs and children specific mutual funds). 

However, one needn’t have to buy everything that’s offered in the market in the name of children’s specific investments. 

A right mix of the above products will do the job and will cost you much cheaper. 

Parents are advised to read the product prospectus carefully before investing. You can even consult a financial planner who can assist you with products specific to your requirements. 

For example, a ‘children specific mutual fund’ is not quite different from the normal mutual fund schemes available today. You might as well just invest in top rated equity diversified schemes and index ETFs.

Whichever scheme you invest in, a disciplined approach holds the key to financial freedom. 

IV. Do consider Systematic Investment Plans (SIP).

An SIP offers a lot of advantages - the main being the ease of investment. 

An SIP can be made for equity mutual funds through the ease of internet banking (ECS debit facility) and therefore, can happen smoothly every month, without feeling a pinch in your pocket. 

V. Keep evaluating the performance of the various investments.

You should do so at regular intervals like a 3-year or a 5-year period to find out if they are shaping up as expected.

When the goal is a couple of years away - move the assets to safe debt instruments, so that any falls in the market/economy do not erode the gains you made so far. 

The ideal way to build an adequate corpus for your child's future is to go step by step. The earlier you start the better. 

A combination of correct investment advice, proper investments and sufficient time can help you achieve all your goals.    

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