Investment Plan for 2-4 Years of Age

Looking at the current state of play, the living expenses of the households are growing at a fast clip. The competition was quite low, and fees were modest making it easy for the earlier generations but now the heightened competition for admission to qualify for government-run institutions is forcing students to turn into private institutions. The big question worrying the parents is whether they are able to fund their child’s education and how they can do so? Education is one of the biggest cash outflows that parents must plan for.

One of the obvious solutions to this problem is to Start Saving Early in the right direction and let the compounding make its magic. Like one of the phrases said:

                                                           “A stitch in time saves nine”

Let’s work towards approaching our goal by keeping in mind that the year for your child’s higher education is fixed. There are various investment options available:

In reference to the table mentioned above, If you have 12-15 years available till your child’s college education then the investment of about 75-80 percent into diversified Equity Investments are a preferred choice for you as these have higher returns of approx. 16-17% over a longer time horizon. The same can be achieved by investing in Equity mutual funds 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 installments or by lump-sum purchase.

Investing the rest20-25 percent into the Public Provident Fund (PPF)backed by the government provides tax-free guaranteed returns of approx. 7-8% under section 80C of the Income-tax act over a lock-in period of 15 years is a sound option. The PPF account can be opened with either Post Office or with any Nationalised Bank that allows a minimum investment of Rs500 to maximum Rs1.5 lakhs made in a lump sum or in installments.

Moving on to our next option which is 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. An 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 your investments are in place, you need to review it at least once a year. At last but not the least avoid investing in stocks as the downturn in the same may jeopardize your child’s Future and yes! be in the loop for the rest of the investment options. Take advantage of your productive years and start investing.

Stay Tuned, Stay Relevant!