Investment Strategies: How To Save For Your Child’s Higher Education?

by Vinaya HS on June 24, 2010

in Finance

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N asks:

I want to save for my kid’s (an year and a half old at the moment) higher education — about fifteen years away. I can set aside Rs 10,000 each month. Where should I save or invest?

Here’s the investment strategy that I recommended:

  1. Rs 5,000 each month in a Public Provident Fund account.
  2. Rs 5,000 each month — through an SIP — in a diversified equity mutual fund. I’d pick the HDFC Top 200 Fund.

Assuming an 8% rate of return for both investments, you’d have a corpus of nearly 34 lacs at the end of fifteen years — sufficient enough to fund a decent higher education.

And, as I’ve written before, it’s prudent to think about the cash outflow of a financial instrument before you invest in it. For the options that I have recommended, it’s easy to stop/resume contributing depending upon your financial situation — you can even stop one and continue the other.

What do you think? Would you advise a different strategy?




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{ 4 comments… read them below or add one }

Anoop June 24, 2010 at 2:15 PM

I guess PPF is a good option we also get Tax returns, but I am unsure of Mutual fund, what is the difference between an ordinary mutual fund and HDFC’s top 200 mutual fund, can you elaborate the risk levels or let me know where I can find some information and understand the cash flow of the financial instrument..

I thought FD’s can be a good choice if it can be a closed loop account and one time investment for a long lock in period, but they are not tax free, What do you think?

Vinaya H S June 24, 2010 at 2:46 PM

Anoop,

I’ll post the specifics in a separate post. I begin with Morningstar India for my research on Mutual Funds.

Personally, I use Fixed Deposits (FDs) only as the second-tier for my emergency funds (details in a future post).

Anil Kuppa June 26, 2010 at 12:07 PM

The link for ‘Morningstar India’ is missing.:P
Why not invest in child plans? Do you detest child plans as much as ulips?

Vinaya HS June 26, 2010 at 6:02 PM

The link’s up. That’s for pointing that out.

Most Child Plans are ULIPs wearing a colorful mask. Need I say more?

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