HERE IS HOW YOU LOOK AT RETURNS: It is only your first investment for your child from the first year of her birth that will give you maximum returns. A policy taken out in the first year, has 16 years (by when parents need money for higher studies) to grow, whereas an investment made later, say at the age of 15, will only have one year to grow. When you look at the mutual funds markets, which is where most of the money in an investment portfolio is placed, the average of 14 per cent returns is based on a number of cycles of boom and bust, and you therefore need to have tenure on your policies to actually see the returns. You need to give your money the chance to grow.
HOW TO FACTOR INFLATION: If you are looking at international higher education, look at what it costs today and then factor in inflation and what it can possibly cost 15 years from now. That should help you determine your premium. You also have to factor in foreign exchange fluctuation. So if you think the inflation is around 10 per cent per annum, what will ` 30 lakhs, 15 years from now at 10 per cent inflation cost? Add to this foreign exchange fluctuation rates. That can amount to around `2.5 crores to `3 crores. Then work backwards to figure out what you need to invest today to reach that target. That is when you will arrive at an approximate figure of investment per month or year, right now.
PROBLEMS YOU MUST ANTICIPATE: There are three ways of investing for your child’s future. You have the money now and will put it away in one instrument that will give you returns. Second, put away a little every month till it reaches the stage of maturity. And third, you look at student education plans in specific. The problem, especially with the second option, is that when you put aside money every month, it is dependent on you being able to do so. In case you die, the goal is never reached. In a student education plan, you pay the premium and the fund keeps growing. But to safeguard your policy should the inevitable happen, you need an insurance of policy where the premiums continue to be paid, ensuring that the policy is seen through. Protecting from risk comes at a cost, and this is built into the policy.
If you choose to go with the first two methods of saving, then it is essential that you take a term policy to back your nominee up in case of death. This will safeguard your child’s future.
Priya summarises by stating that because education is such an important thing, people tend to be conservative in their investment. The potential tenure of around 15 years is not used to its maximum benefit, if it is restricted to an FD, recurring deposit (RD) and the likes. Equity is needed in a portfolio; it is essential to make investments through equity.
Moreover, education is always the primary goal. If at the point of paying for that education, you find that you are not using the entire fund, it is still your money and you can decide what you want to do with it. You can hand it over to your child, reinvest or even use it for your own retirement fund.
Every Rupee has to have a goal, and some smart investment will ensure that every penny you save, counts towards your child’s future. |MB
● Start investing as early as possible to get the most of the power of compounding over the years.
● Figure out what kind of education—primary or international higher studies—and plan to set aside accordingly.
● Always factor in inflation and how it can affect your returns. This will determine your premium.
● Always include a risk coverage in the form of policy insurance or a backing term policy, to protect your invest or safeguard your nominee, in case of death.