Advertisement

Help
You are here: Rediff Home » India » Business » Personal Finance » Manage your Money
Search:  Rediff.com The Web
Advertisement
  Discuss this Article   |      Email this Article   |      Print this Article

Best mutual funds for your child
Hemant Rustagi, Moneycontrol.com
 
 · My Portfolio  · Live market report  · MF Selector  · Broker tips
Get Business updates:What's this?
Advertisement
November 14, 2006 15:37 IST

All of us want our children to get the best education possible. By having a financial plan in place, you can make it possible for your child to have better options, both in terms of deciding the type of education as well as selection of colleges.

To achieve this very important goal of your life, investing early is a very simple yet powerful method. The earlier you start, the longer your investments have time to grow.

There are many who do not consider it necessary to start investing for their child's education when he or she is in pre-school. However, the fact is that investing early ensures that there are no short falls in the targeted amounts.

Besides, since building up assets for your child's education is a long term objective, it is important to ensure that you invest in those options that have the potential to give you better real rate of return i.e. returns minus inflation. This factor is crucial considering the escalating costs of higher education.

Remember, the way you save as well your investment strategy will depend on many factors like how much you wish to save, how long until the money is needed, and whether you have a lump sum or will be saving out of your current income.

Mutual funds can provide an excellent investment vehicle for your child's education. They offer diversification, flexibility and simplicity. Besides, investing through a tax efficient vehicle like mutual funds can help you accumulate more for your child's education.

Depending upon when you begin investing for your child, here are some model portfolios:

1. Age of the child: Newborn to 5 years

If you start investing at this stage, you allow your savings the maximum time to build up assets for your child's education. With time on your side, you can take higher risk and go for equity funds. However, if you choose to invest on a regular basis, try and increase the amount every year.

2. Age of the child: 6-12 years

While a part of the portfolio may still focus on aggressive investment options like equity funds, you will do well to include balanced funds also to reduce risk. The attempt should be to move money to lesser volatile investment options, as the child grows older.

3. Age of the child: 13- 18 years

At this stage, it would be advisable to invest in funds that are least volatile and overall the focus should be on preserving capital. Also, liquidity should be an important consideration while working out the strategy. While the open-ended mutual funds will ensure that the money is available to you as and when you require it, the key is to make the money grow at a reasonable rate.

As mentioned earlier, for those who wish to take the equity fund route and invest on a regular basis, a Systematic Investment Plan (SIP) is the best. It is a proven fact that a steady plan both in terms of savings and investments helps pursue financial goals.

What SIP really means is that you invest a fixed sum every month. When you invest a fixed amount, such as Rs 5000 a month, you buy fewer units when the share prices are high, and more units when the share prices are low.

Besides, you take advantage of the fact that over a period of time stock markets generally go up, so your average cost price tends to fall below the average NAV. This 'averaging' ensures that you buy at different levels, without having to worry about the market levels.

Here are some important points to remember before you establish your regular investment programme:

For those who may not want to invest the entire money in equity funds, there are certain other options. Some of the mutual funds have established dedicated balanced funds for children, where in one has the option of investing in a ready made equity-oriented or a debt-oriented fund. Here is a glimpse of what these funds have offered to investors over a period of time.

Absolute Returns (in %) as on November 13, 2006

Hybrid: Equity-oriented

Scheme

1 Year

2 Years

3 Years

5 Years

HDFC [Get Quote] Childrens Gift Fund (Inv Plan)

19.1

65.1

95.5

210.5

Principal Child Benefit - Career Builder

45.2

90.6

124.0

255.2

Principal Child Benefit - Future Guard

45.2

90.5

124.0

254.7

Pru ICICI [Get Quote] Child Care Plan - Gift Plan

33.3

77.4

125.0

293.3

Hybrid: Debt-oriented

Scheme

1 Year

2 Years

3 Years

5 Years

HDFC Childrens Gift Fund (Sav Plan)

3.9

22.1

32.5

77.4

Pru ICICI Child Care Plan - Study Plan

15.0

30.3

40.7

89.5

Magnum Childrens Benefit Plan

12.0

26.3

32.7

--

LIC [Get Quote] MF Childrens Fund

15.8

19.0

23.0

47.8

Tata Young Citizens Fund

27.4

58.6

82.6

191.8

Templeton (I) Childrens Asset - Gift Plan

37.0

47.4

54.5

93.0

(Past performance is no guarantee of future performance)

So, go ahead and start planning for your child today. Mutual funds have the right options to suit your requirements and the ability to help you realize your dreams.

The author is CEO, Wiseinvest Advisors Pvt. Ltd. He can be reached at hemant.rustagi@moneycontrol.com



 Email this Article      Print this Article

© 2008 Rediff.com India Limited. All Rights Reserved. Disclaimer | Feedback