Investment Plan for 4-6 Years of age.

As your child continues to grow he or she is a pre-schooler now, you will notice new and exciting abilities that your child develops.  Providing children the ideal opportunity for learning and development is the foremost among the parent’s goals. So, now planning for your child’s college education is one the long term financial goal of your life.

The important things to keep in mind while investing towards any goal is to start early as possible and should implement the concept of stepping up.  For example, if you earn Rs 70,000, save 10% of that which is Rs 7,000 then if your income increases to Rs 75,000, you must increase your savings as well to Rs 7,500.

Let us look towards how you can plan to build your own portfolio to meet the long term financial goals of higher education of your child by including these financial instruments:

1. Diversified Equity Investments are tending to give returns like no other of approx. 16-17% over longer time horizon. The same can be achieved by investing in Equity mutual fund of various Fund houses (Axis, UTI, HDFC etc.) and in different sectors (Technology, Financial, Pharmaceutical). This Equity fund managed by professional money managers invests predominantly in stocks of the companies by pooling the capital from individual investors and thus provides you diversification benefits with much lesser risk than solely investing in a particular stock. You can start investing either by monthly SIP instalments or by lump-sum purchase.

As they say, “little drops of water make the mighty ocean” one of the best ways to entering the market is through systematic investment plan (SIPs), as it also brings investment discipline in your good self. You also need to ensure that your targeted goal is inflation-protected like the time value of today’s 50 Lakhs at 6% inflation 10 years down the line will be 28 lakhs. The compounding impact of these investments helps you in beating the inflation by comfortable margin.

Let us suppose it requires 18 Lakhs after 10 years and then your current savings rate of Rs 8,545 per month over the next 10 years will make you accumulate a principal corpus of Rs 10.25 Lakhs. At an average rate of 16% the portfolio will become Rs 25.00 Lakhs. At an average rate of 13% the portfolio will become 20.85 Lakhs. In case the returns are lower 11% the portfolio value will be 18.54 Lakhs. Thus in all the three instances you are able to make your targeted sum.

Some of the top SIP performers that are available in the market are Axis Bluechip Fund, Canara Robeco Emerging Equities, SBI Bluechip Fund, Nippon Growth and many more.

2. Equity Linked Savings Schemes (ELSS)are the mutual funds that stands out with dual benefits – Higher returns and partially Taxable (returns will be taxable at a concessional rate of 10% if gains are above 1 Lakhs). These funds are having the lowest lock-in of 3 years.

3. Sukanya Samriddhi Yojana is a viable option for a girl child that can be opened in Post offices and in any designated private and public banks offering 8-8.5% interest rate. Your girl child should be less than 10 Years at the time of account opening.

4. Unit Linked Insurance Plans (ULIPS) , in which insurance company invests part of your premium in shares and  bonds and the balanced amount is utilized in providing  Life insurance cover. Your investments are managed by the professional fund managers in the insurance Company. Interesting thing about the same is that premium paid towards the ULIP is eligible for tax deduction under section 80C and additionally the returns out of the policy on maturity are also exempted from Income tax.

Once all your investments are in place, always remember to review and rebalance them at least once a year to make up with market trends and volatility. Pull up your socks Go ahead! and start investing.

Stay Tuned, Stay Relevant!